Inside the portfolio: Cutting BHP, backing Suncorp and buying overlooked AI winners

Australia's mining giants have enjoyed an extraordinary run, but AllianceBernstein's Hamish FitzSimons is questioning whether the rally has gone too far.

The Chief Investment Officer of Australian Equities has increased his underweight positions in BHP (ASX: BHP) and Rio Tinto (ASX: RIO) following the mining sector's biggest 12-month outperformance in three decades. He's particularly sceptical of the argument that artificial intelligence will continue pushing mining stocks to ever-higher valuations.

Instead, he's finding opportunities in some less fashionable corners of the market.

In Inside the Portfolio, we ask fund managers to explain their recent investment decisions, from new holdings and reductions to their biggest active positions and the themes shaping their thinking.

In this edition, FitzSimons explains why two utility stocks flying under Australian investors' radar could benefit from the AI boom, why he's wary of the mining rally, and why insurers and other defensive businesses are becoming increasingly attractive.

What was the most notable addition to the portfolio this quarter and why?

We added to our holdings in New Zealand electricity generators and retailers Mercury (ASX: MCY) and Genesis Energy (ASX: GNE). Both are listed on the ASX, yet they receive relatively little attention from Australian investors.

For stable businesses, they trade on undemanding multiples and offer attractive yields.

New Zealand is experiencing solid growth in electricity demand as their industry and transport fleet electrifies, and this could accelerate meaningfully with the development of large-scale data centres.

Global hyperscalers view New Zealand favourably as a data centre location as its power is predominantly hydro-generated and renewable, and its cooler climate helps reduce energy costs.

What was the most notable sell or downsize in the portfolio this quarter and why?

We increased our underweight positions in Rio Tinto and BHP. 

We believe insufficient attention has been paid to the fact that the mining sector’s outperformance in the 12 months to 30 June 2026 was its largest 12-month outperformance in 30 years, with the sector up 50% relative to the market.

After a move of that magnitude, investors need to consider carefully whether the rally can continue or whether valuations have run too far. 

The bull case appears to rest on the view that mining will continue be supported to ever higher highs by the AI roll-out. We remain cautious on that thesis.

What’s your most notable overweight and why?

We are overweight Suncorp (ASX: SUN) as we believe it is very well positioned. Six months ago, sentiment was weighed down by storm-related claims, which are an inherent part of operating as an insurer. Since then, the backdrop has improved considerably.

Interest rates are higher, supporting investment income and petrol prices have risen sharply, which has reduced traffic volumes and, in turn, motor vehicle claims.

Suncorp has also secured a favourable reinsurance arrangement that reduces its exposure to storm-related volatility. Together, these factors create a supportive environment for the business.

What’s been one of your most notable performers over the quarter?

Challenger (ASX: CGF) performed well, particularly towards the end of the quarter and has since received a takeover proposal. This was not entirely unexpected, as the bidder, TAL Daiichi Life Australia, already held around 20% of the shares.

Challenger has innovated well on product and benefited from favourable regulatory change, and it is a materially stronger business today than it was two years ago.

The Challenger board has since rejected TAL’s indicative offer of $11.80 per share as insufficient, and with the share price trading above the offer, the market appears to be pricing in an improved bid.

What themes and trends are dominating discussions right now?

Investors face no shortage of concerns, including potential bubbles in AI and private credit, renewed inflationary pressures, ongoing geopolitical conflict and rising interest rates. Much of the current discussion centres on how to invest in companies that can perform well despite these challenges.

In an increasingly uncertain world, we think investors should place a greater premium on predictability, balance-sheet strength and reliable income streams.

This is a key focus of our research and portfolio construction. Insurers, supermarkets and gaming companies are examples of industries well placed to grow earnings and pay reliable dividends in an uncertain environment.

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