Bruce Williams on the art of resilient investing

Markets reward discipline, but they also test it constantly. For Bruce Williams, Portfolio Manager and co-founder of Elston Asset Management, investing isn't about chasing every market shift. It's about reading the cycle, recognising when sentiment has overshot, and knowing when the odds have tilted back in your favour. 

With decades of experience across Australia and overseas, Williams has built a reputation for level-headed portfolio construction, disciplined process, and mentoring the next generation of Elston analysts to think beyond the day-to-day headlines.

This week, he shares how he’s approaching a market full of contradictions, strong earnings momentum alongside political spending sprees, platform wars heating up in wealth management, and a renewed focus on governance after some high-profile missteps. 

His message is clear: stay focused on cash flow, management quality, and alignment. These are the markers of resilience when cycles turn and sentiment fades.

Because in the end, investing isn’t about predicting the next headline, it’s about positioning for the next decade.

What’s your most recent investment and why?

Across our style-neutral large-cap portfolio, we recently took a position in SGH Limited (ASX: SGH). As quite a cyclical business, a weaker than expected FY25 result has given us an opportunity to enter the company at a reasonable valuation given their longer-term growth opportunities. 

We see the lower equipment utilisation at Coates and the reduction in service revenue at WesTrac as shorter-term factors that do not impact the longer-term thesis.

What attracted us to the business was the strong operating cash flow, exposure to the long term thematics of infrastructure build, mining production and energy. 

Also, management has proved over the years their ability to not only allocate capital correctly through M&A but then work with the acquired business to improve the operational performance through excellent execution. 

Wholly owned businesses include WesTrac, Boral and Coates Hire. They also have an equity position within Beach Energy and Seven West Media. It is also worth noting that management is aligned with significant insider ownership, they’re committed to long-term shareholder value creation.

Which investment did you add to your watchlist this week?

New on my watchlist this week are both platforms and fierce competitors - HUB24 Ltd (ASX: HUB) and Netwealth Group Limited (ASX: NWL). The main reason for adding to my watchlist is that they have just entered our universe of the ASX 100. 

Both have proven to be strong growth stories over many years, and compete directly with our existing holding AMP Ltd (ASX: AMP). 

All of these companies have the benefit of two main growth drivers - Australia’s superannuation system and increased SMA’s (separately managed accounts) adoption as an investment technology used by financial advisers.

What is the most recent investment you have trimmed or sold, and what drove this decision?

As we manage the funds via a fixed weight methodology, to add SGH Limited (ASX: SGH) we had to take a little weight off another holding. In this case it was The Lottery Corporation Ltd (ASX: TLC). 

We had an overweight position in their full year result, however the strong share price post result has reduced our expected return for the security. 

We still think very highly of the business, its future prospects and what it offers the portfolio including digital penetration, improving growth and margin, strong pricing power, and its dominant market position. It is also quite defensive in nature, which is also appropriate in the current environment.

What’s your favourite chart or data point from this week?

I found this US chart interesting due to its parallels to Australia. 

It is very unusual to see deficits increasing during times of low unemployment and economic growth. 

Historically, increased government spending / fiscal stimulus occurred when the economy was weak, and vice versa. Is the rationale for this purely political, or a longer-term change in policy? 

Ultimately, government spending at these levels, driving government debt, is not sustainable.

What was your weekly high - a standout market moment or highlight?

After several missteps in recent months, James Hardie (ASX: JHX) updated the market with their Q2 earnings expectations, which was a lot better than feared. 

Even though the announcement was positive, I am struggling to enjoy the moment as it was only on August 20 that the company shocked the market with a very soft outlook as part of their FY24 result update. 

We still believe in their market position, product suite and manufacturing capability, but it is the governance aspect of the company that is a major concern for us.

What was your weekly low – a market disappointment or challenge?

A general disappointment is the state of affairs with the ASX. It is a company that we follow closely, but do not currently own. 

This week, the regulator approved CBOE for listing Australian companies. Shortly after, there was another market operation error (keep in mind this isn’t related to the CHESS system) where they allowed trade to resume in a company that was in the process of announcing an acquisition and launching a capital raise. 

It’s not a company we own, but it's one that we follow as it should be a great Australian business. It’s clear that the board and management have not been focused on the core operations for some time, and there has been substantial damage to the long-term value of the business.

What first drew you to markets or this sector and what continues to keep you inspired today?

I find business endlessly interesting. 

To look at how a business might go from a small company to a multinational corporation: 

• What did they do? 
• What was their advantage? 
• How did they scale it? 
• What did they see that competitors didn’t? 

For our universe, it’s also about how a company stays on top. 

As a larger, more mature business:

• How do they continue to grow? 
• How do they compete with challengers? 
• And not become bloated and indecisive? 

Personally, I find it makes every working day different and a learning experience.

What’s one piece of advice you’d give to new investors?

Focus on the cash flow. Without it, many other risks arise with the potential to be fatal to the company. It can also aid growth, as well as mitigate the risk. 

If you are generating high levels of cash, the opportunity will be there, especially when the environment for your business is suboptimal. To convert cash flow into opportunity, the key is disciplined management in deploying that cash.

How do you unwind when you’re not thinking about the market?

My wife and I have three boys, so weekend sports are constant. I am a mad golfer and enjoy practising at least one night a week for a couple of hours – it’s something about the repetition of it that I find relaxing. 

Lastly, I love to fish in any form, so I try and do a little of that most weekends. This one isn’t fun or relaxing, we live in an old Queenslander - so maintenance is constant on the weekends!