Inside Victor Smorgon Group’s biggest investment bets right now

This interview was filmed Wednesday, 13 August 2025

Investors are always searching for themes that can drive meaningful returns over the long term. For Victor Smorgon Group, one of those themes has been automation, both industrial and electrical, which has grown from a minor allocation to a central pillar of the portfolio in just a few years. 

What started as a practical insight from the Group’s private business operations has now evolved into one of its most powerful listed equity strategies. As Joseph Sitch, Co-CIO of Equities, told me:

“With any theme, we let things earn their right to grow. 

Industrial automation is something that we've tracked as business operators in some of our private businesses for a number of years. That's where the theme originated. 

In some of our agricultural investments, we implemented industrial automation kit and that represented a really strong return on capital and we thought if it's good enough for us, it's going to be good enough for a number of others", said Sitch.

From there, Victor Smorgon Group drilled down into the value chain - power providers, compute, applications, and installers - and backed the businesses with the right mix of earnings growth and pricing power. 

Alongside automation, gold remains another high-conviction allocation, underpinned by unsustainable US debt dynamics, central bank demand, and a shift in settlement practices across the East. 

Add to that the Group’s “best ideas” portfolio, where companies hitting inflection points are backed more heavily, and you have a clear picture of how Victor Smorgon Group is positioning for the years ahead. Learn more by watching the video above, or read a summary below. 

INTERVIEW SUMMARY

Building automation from the ground up

Sitch explained that automation began as an operator-driven idea, born out of Victor Smorgon Group’s own agricultural and industrial businesses. After testing automation solutions internally, the team realised the potential returns were too powerful to ignore. 

“If it's good enough for us, it's going to be good enough for a number of others,” he said.

The automation portfolio has expanded from 3% to 21% over three years, covering three core segments: electrical infrastructure - companies like Prysmian (BIT: PRY) and Hitachi (TYO: 6501); compute - such as ASML (NASDAQ: ASML) and TSMC (NYSE: TRM); and applications/installers, like Caterpillar (NYSE: CAT), John Deere (NYSE: DE). 

Sitch pointed to Hitachi as a standout: “They've got a Lumada business [digital solutions] which has really improved their operating margins and that's helped them take their return on invested capital from 4% to approximately 9.5%".

He also highlighted the importance of patience: investing in ASML only when multiples offered a margin of safety, despite its dominance in lithography.

Managing risk and growth

Although automation is the single biggest theme in the fund, Sitch emphasised a careful, incremental approach to risk. 

“We debate that internally a lot, and we really are tight on our risk in terms of what does taking it from 20% to 30%… do in terms of our expected return and incremental volatility.” 

The group recently split automation from electrical infrastructure into discrete themes because their earnings cycles are uncorrelated, providing room for further growth without compounding risks.

The gold case

Gold has been another strong contributor, adding 6.4% to FY25 returns. For Sitch, the thesis rests on three pillars: unsustainable US fiscal dynamics, rising use of gold as a settlement tool in Asia, and central bank buying. 

“We're at the point where government interest and entitlements in the US are exceeding the receipts from taxation, and every time that's happened there has been a revaluation of gold over time,” he explained.

The focus, however, isn’t just on the metal; it's also on the miners. 

“If the gold price is up 30-40% year to date… their earnings should be materially higher than 30-40%. And really, that comes down to which management teams are good capital allocators and they return capital to their shareholders.” 

He named Ramelius Resources (ASX: RMS) in Australia and Equinox (NYSEAMERICAN: EQX) in the US as standouts.

Best ideas portfolio

Beyond thematics, the Group runs a “best ideas” sleeve. These are not new themes but concentrated bets within existing ones, where the team sees an overlooked inflexion point. Sitch described them as “companies that sit within existing thematics whereby there is a really material inflexion point that's occurred and hasn't been reflected by the market.”

Hitachi again provided an example: after selling non-core divisions and refocusing on grids, energy, and automation, it implemented a software package that doubled ROIC. 

“Whilst there was very strong earnings growth… it was only when that balance sheet and an earnings story became clearer that the company got a material multiple rerate" said Sitch. 

Investing like operators

Throughout the discussion, Sitch returned to a central theme: Victor Smorgon Group invests like business operators. 

That means focusing on capital allocation, earnings durability, and margins, rather than chasing market fads. Whether in automation, gold, or best ideas, the approach is systematic, incremental, and rooted in lessons learned from running real businesses.