6 long-term investment ideas from Australia's top-rated fund managers

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Livewire Markets

Welcome to Livewire’s Top-Rated Funds Series, where we put the spotlight on some of Australia’s best-rated funds. We’re kicking off this show by featuring six managers known for their ability to uncover hidden pockets of value and predict tomorrow’s big themes through their qualitative smarts and cutting-edge methodologies.

This star-studded group has been rated by Lonsec, Morningstar, and Zenith as the crème-de la crème of the industry, and we’re giving you front-row access to the stocks and themes they believe every investor should consider for their portfolio.

Here are the fundies participating in this episode:

  • Paul Skamvougeras, Perpetual
  • Catherine Allfrey, WaveStone Capital
  • Andrew Parsons, Resolution Capital
  • Kate Howitt, Fidelity International
  • Ben Griffiths, Eley Griffiths Group
  • Sam Ruiz, T. Rowe Price

You can watch the video by clicking the player or read an edited transcript below. Enjoy!


Edited transcript

James Marlay: I was wondering if you could talk to me about an investment idea or stock, something that is ticking your conviction boxes at the moment?

Sizzling idea #1 - Deterra Royalties (ASX:DRR)

Paul Skamvougeras, Perpetual

My idea is an interesting company that recently spun out of Iluka Resources called Deterra Royalties. It's a mining royalty company. Deterra owns revenue royalty over Mining Area C in the Pilbara, WA, which is one of the big iron ore provinces where BHP produces its iron ore.

Now, why is it interesting? We think, in the work that we've done, it's probably, arguably, the best royalty that you can own globally and one of the highest quality. Reasons being, it's mine life, it's probably 50 years, if not more. In terms of counterparty risk - your counterparty is BHP, that's who you're hoping will pay you. We think that they can meet those obligations.

In terms of producing over the cycle. It doesn't matter whether iron ore is US$220 or US$25, the production from BHP is going to keep coming out because they're very, very low on the cost curve. And there's no capital to spend, so the royalty owner doesn't have to spend any capital, increasing production.

And where we are right now, Deterra is going from 55 million tonnes of production out of the Mining Area C province to 145 million tonnes. Now that will be ramping up over the next two years. That's all paid for by BHP. In fact, for every million tonnes extra that they produce out of that province, Deterra gets a million-dollar check, plus the royalty on top.

Sizzling idea #2 - Sydney Airport (ASX:SYD)

Catherine Allfrey, WaveStone Capital

We still think there's an opportunity in some of those left behind recovery plays such as Sydney Airport.

Clearly, it's been terribly impacted by what's going on with the borders being closed. And we do think that tourism will return at some point, so we're prepared to wait that out. With a company like Sydney Airport, which we see as a monopoly asset here in Sydney, it's an iconic asset, and those tourists will come back and, again, that company will thrive. So that's one company that we think, in terms of a long-term trend, will be a beneficiary.

Sizzling idea #3 - Timberlands

Andrew Parsons, Resolution Capital

Timberlands are an interesting one. There's a couple of timber REITs out there that we really think are pretty interesting because not only are they sequestering carbon or carbon sinks, they actually are effectively making carbon building materials because that timber captures the carbon and then the tree is used to help in the building process. So I think that's a really exciting one for the next 10 years and probably still underappreciated.

There's been an enormous increase in lumber prices and there's a distinction between lumber price and the timber price, believe it or not. The lumber is the cut timber. The lumber prices escalated dramatically, but the timber price, the log price, has actually stayed quite low. And the reason for that is around the disruption caused by COVID and the lockdowns etc. So I think the timber log price, that's going to be an exciting area for the next decade, quite frankly.

Sizzling idea #4 - Macquarie Group (ASX:MQG)

Kate Howitt, Fidelity International

I think one of the topics that has really been building in markets is the idea of ESG (environmental, social, and corporate governance) and who's the ESG winner. And if you look at some markets offshore, you could buy a wind farm company, or a solar company, or something that's kind of right at the pointy end of decarbonizing the world.

That de-carbonization process for the world is going to take somewhere between US$100 and US$150 trillion. That's a lot, right? The US economy's GDP is only about US$21 trillion, so there's a lot of money. So if you say, "Well, okay, I think that needs to happen. I want something that's going to be part of that big tailwind. What do I own in Australia?". I have a slightly different view that a really great stock for that theme is Macquarie Group. Because Macquarie is saying: "Well, US$100 trillion, that's a lot of investment that's going to be made."

So the group in the last couple of years has been hiring scientists and engineers, specialists who can really help them understand the fundamentals about the various technologies that will be part of that because they know if they understand that better than anyone else in the room, they can be the adviser to the wind farm developer. They can be the adviser to the wind farm off-taker. They can be the adviser to the wind farm acquirer. They can co-invest. So they are positioning themselves to be the green investment bank to the world, or the 'picks and shovels' play on de-carbonisation, and we think that's got a long runway to go.

Sizzling idea #5 - PointsBet Holdings (ASX:PBH)

Ben Griffiths, Eley Griffiths Group

PointsBet is doing some very, very clever things in terms of winning its share and its presence in a number of US states, and we think with their credentials, and their experience, and their model, that they will progressively grow out their footprint across the United States.

Eley Griffiths Groups been an investor in PointsBet from quite early on, and continues to be an investor. We're very excited about the way in which they're approaching this terrific opportunity.

Sizzling idea #6 - Zoom (NASDAQ:ZM)

Sam Ruiz, T. Rowe Price

We really like Zoom at the moment. And it's quite a controversial name because it really is in that basket of companies that had extreme tailwinds from COVID but have since been seen as this business that maybe people don't really want post-COVID. We hear about Zoom fatigue. Even the CEO of Zoom on a previous earnings call highlighted even he had Zoom fatigue.

So this is a business that saw a 300% revenue acceleration during COVID and the market doesn't want to own it now because it's going to decelerate to somewhere between 40-60%. Now, if you think about what that's meant for the stock, it's actually underperformed the broader global equity index by 60% since September. So this is a business that the market thinks doesn't have any second acts. We actually believe that they're going to turn that tailwind from COVID into new verticals that the market's not anticipating. So Zoom, we believe, will be a central communications platform for large enterprise, not just video conferencing.

Australia's 100 top-rated funds

Livewire's Top-Rated Fund Series gives subscribers exclusive access to data and insights that will help them make more informed decisions. Click here to view the dedicated website, which includes:

  • The full list of Australia’s 100 top-rated funds.
  • Detailed fund profile pages, with data powered by Morningstar.
  • Exclusive interviews with expert researchers from Lonsec, Morningstar and Zenith.
  • Videos and articles featuring 16 top-rated fund managers. 
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