Anna Milne: 4 steady performers, 2 fallen angels and the 'must-own' commodity right now

Five years ago Anna Milne thought she had already found her dream role working as a sell side analyst for UBS. But when opportunity came knocking to make the switch from sell-side to buy-side and join Wilson Asset Management's large cap team, lead by Matt Haupt and John Ayoub, it was an opportunity too good to pass up. 

Since joining WAM, Milne has risen through the ranks to become Deputy Portfolio Manager of WAM Leaders (ASX: WLE), a $1.9 billion listed investment company focused on the ASX 200. 

While the idea of investing in large caps might sound a tad dull compared to the smaller end of the market, the latest reporting season has proven that the thrills and spills can be just as wild. 

“Large caps are considered stable, but the dispersion of returns shows you can’t just hold miners and banks and expect a market return.”

In this episode of The Rules of Investing, Milne explains how Wilson Asset Management is approaching large caps and why patient capital allows the team to take a longer-term view on troubled businesses. Milne also reveals the 'bread and butter' stocks that are the mainstays of the large cap universe and the stock she'd be happy to own if markets shut for five years.

Click on the player to listen or read a summary below.

Macro matters in large cap stocks

Wilson Asset Management applies a three-pillar framework to investing: macroeconomics, fundamentals, and positioning.

“Macro is where our view begins, and that is extremely important in large caps,” Milne explains. 

For resources, that means close attention to commodity prices, while in banks it is credit metrics and flow.

But fundamentals also play a role. “The market is not always right, and we’ve seen that in this last reporting season with shocks at the large end of the curve.”

Where WAM Leaders often finds its edge is positioning. “With the rise of index funds and algorithmic trading, flow is really important and often perceptions swing so much further than reality,” Milne says. “We see opportunity in names where maybe they’re not as bad as the market thinks or maybe they’re not as good, and we trade accordingly.”

One of the bigger sector exposures in the WAM Leaders portfolio is resources. Milne explains that while the sector is often better suited to tactical rather than long-term trades, there are opportunities.

On iron ore, Milne describes the team’s stance as “neutral-to-slightly positive.” She highlights BHP (ASX: BHP) and Rio Tinto (ASX: RIO)  as core exposures, with Fortescue Metals (ASX: FMG) sometimes added for “a bit more of a leveraged, high-octane play.”

Lithium and rare earths have also been in focus. “From a lithium perspective, short interest reached such high levels and we saw supply cuts in China. We moved very quickly and caught a lot of that rally,” she says.

“Given the news out of the US Department of Defence, we think rare earths are a must-own at the moment. It’s basically put a floor price under Lynas (ASX: LYC) and Iluka Resources (ASX: ILU).”

By contrast, the team is cautious on oil and underweight gold. “Oil doesn’t offer a compelling reason right now, and gold has become quite stretched,” Milne says.

Backing the fallen angels

Not every stock in WAM Leaders’ portfolio is riding high. Milne says a portion of the fund looks “a bit like an orphanage.” These are the fallen angels, companies that have stumbled but still hold long-term potential.

“We’re not a value fund. We’re style agnostic. But we will take on positions in fallen angels if we believe in the fundamentals and the management team,” Milne explains.

1. WiseTech Global (ASX: WTC) 

“We are big believers in the CargoWise product,” Milne says. “The media hysteria around the founder’s personal life meant the market forgot what a fantastic company this is. No one churns off this product. It has huge runway in revenue and margin expansion.”

WiseTech is now a key holding in the WAM Leaders fund.

2. Challenger (ASX: CGF) 

“Management has done a good job of improving the quality and repeatability of earnings,” Milne says. While concerns around shareholder selldowns weighed on sentiment, Milne believes regulatory changes to capital standards will unlock billions for shareholders.

3. Insurance Australia Group (ASX: IAG) 

IAG was hit by back-to-back La Niña events and inflation in claims costs. “But this is a leading franchise, and weather isn’t something you can forecast forever,” Milne notes. The stock has rebounded from around $4 to $9, though she now considers it more fairly valued.

Steady performers that keep delivering

While volatility grabs the headlines, Milne stresses the importance of steady compounders in large cap portfolios.

“These are the bread and butter of the space,” she says. “Mid-single digit earnings growth, a decent dividend, and buybacks can keep delivering high single-digit returns for years.”

She points to several examples:

• Medibank (ASX: MPL): Consistent healthcare insurer with reliable earnings.
• Carsales.com (ASX: CAR): Solid growth from digital classifieds.
• GPT Group (ASX: GPT): Shifting from a ‘lazy rent collector’ to a growth platform under new leadership.
• Telstra (ASX: TLS): “The perfect formula,” Milne says, citing mid-single digit growth, a 4% yield, and buybacks. She dismisses concerns about dividend sustainability: “Not only is it sustainable, but it’s growing.”

Lessons from leaders

When asked to share an insight from a meeting with a CEO that changed how she thinks about an industry or business, Milne highlights two:

• Cleanaway (ASX: CWY): The CEO links performance to community impact by rewarding employees with donations to children’s hospitals if weekly targets are met. “The psychological side of motivating employees is really interesting,” she says.
• GPT Group (ASX: GPT): CEO Russell Proutt is empowering staff to make autonomous decisions within clear guardrails. “It’s a cultural reset and says a lot about how companies can unlock growth,” Milne notes.

What investors might be missing

Asked what investors are getting wrong right now, Milne points to interest rates.

“The market is so positioned for rate cuts, particularly in the US. We’re not convinced we won’t see reflation later this year. If cuts come out of the curve, it could be quite negative.”

Combined with narrow positioning and liquidity concerns, she describes the setup as “fragile.”

One stock to own if the market shut for 5 years

Finally, Milne was asked which single company she would own if markets shut for the next five years. Her answer was Goodman Group (ASX: GMG).

“They’ve raised $4 billion and are fully funded to execute on their global data centre pipeline,” she says. “AI is here and Goodman offers a relatively value way to get exposure through infrastructure. Regardless of the macro, we know what this business will look like in 12 months.”