Resources stocks facing earnings upgrades
Valuation is a key factor for stock selection within our Australian portfolios. Given this value bias, our funds were not significantly exposed to the growth stocks that suffered from a momentum reversal seen in February. The fund recently took the opportunity to increase exposure to selected resource companies, given these companies are now facing the prospect of earnings upgrades from the analyst community. Although the outlook for key commodities remains difficult, we felt the market was excessively discounting this. The fund also established a holding in Fairfax Media, which we believe is well positioned to deliver strong shareholder returns in the current environment. Led by an experienced and capable management team we see their digital business as the ultimate driver of value as it continues to deliver strong growth while the strength of their balance sheet allows for further capital management opportunities. Downside risks still remain within their traditional print media assets; however these are well understood by the market, which is ascribing very little value to them.
Mark is a Co-Founder and Executive Director of K2 Asset Management. He is also the Joint-CIO for the K2 investment funds and focuses on the portfolio management of the Asian equity strategy.