What still works on the ASX: 8 stock picks from 4 leading fund managers

Whilst Australia Day has become politically charged, in a markets context, it brings into focus a question Aussie investors are grappling with: is it still worth investing in Australia, or is it only for convenience? 

We have a tremendous home bias in this country, and whilst we have world-leading mining companies, and a handful of standout tech and healthcare names, the fact is that Australia did not perform well against its global peers last year and, as many have argued, lacks the innovation and entrepreneurial spirit to excel on the world stage.

To dig into that properly, I spoke with four managers who see the Australian market from very different vantage points. Lucas Goode from Investors Mutual, Stuart Welch from Alphinity, Joe McCarthy and Alastair MacLeod from Elston, and Shaun Weick from Wilson Asset Management.

Rather than chasing hot takes, I asked the same set of questions across structure, opportunity, valuation, stock selection, and the outlook for 2026. The result is a grounded, occasionally uncomfortable, but ultimately constructive take on what Australia still does well and where selectivity matters more than ever.

What are 1-2 distinct features of Australian equities and what benefit do they create/add in a portfolio?

Despite Australia’s recent underperformance, none of the managers argued that the local market is structurally impaired. Instead, they pointed to a combination of institutional strength, market depth and resource endowment as the features that continue to shape returns across cycles.

Goode and Weick both pointed to the breadth and stability of the Australian market as a defining advantage. For Goode, that strength is rooted in Australia’s economic foundations and institutional quality:

“Australia is a high-income economy with a growing population, stable financial system, strong rule of law, and a powerhouse in both hard and soft commodities.”

He also added that “the ASX is also a relatively deep and liquid market, offering a diverse opportunity set to investors.” 

Weick echoed that view, pointing to “the depth and breadth of the companies that you can invest in here domestically,” and Australia’s standing as “a tier one jurisdiction from a global basis within the mining sector,” alongside companies that “can go on from becoming micro to small to mid to large caps.”

Welch framed Australia’s role around structure and resources. He said Australia combines “population growth dynamics that simply don't exist in most developed markets with a strong institutional framework,” and added that “Australia’s resource endowment positions us uniquely for both the traditional commodity cycle and the energy transition,” extending to “transition metals – copper, aluminium, lithium, rare earths - that are essential for decarbonisation and electrification.”

Rather than debating short-term performance, McCarthy and Macleod focused on what Australian equities contribute to a portfolio across cycles:

“There are three reasons Australian equities warrant a core role within local portfolios: high and stable dividends, franking credits, and a meaningfully lower risk equity return profile.”

Which two areas/sectors of the ASX offer the most attractive risk-adjusted opportunities over the next one to three years?

Across the four managers, three areas of the ASX emerged as offering the most compelling risk-adjusted opportunities over the next cycle: resources, healthcare, and selective parts of financials. The debate was less about which sectors could work and more about what would sustain returns from here.

Resources featured prominently, particularly for managers focused on earnings momentum and global structural change. 

Weick approached the opportunity from a top-down, macro perspective, focusing on how shifts in the global economy are reshaping sector leadership:

“We think the world is fundamentally undergoing a period of deglobalisation, which places the resources sector in a good position.”

Welch’s conviction was grounded less in macro geopolitics and more in what earnings are signalling across the market, particularly where leadership is beginning to rotate:

“Today we think the most compelling opportunity is in the materials sector, which is leading an earnings leadership rotation that looks likely to extend into 2026, supported by better-than-feared global demand, supply constraints, a weakening USD, and conservative sell-side commodity price expectations.”

Healthcare emerged as the other major opportunity, particularly among managers looking beyond sectors that have already re-rated. 

Goode pointed to how aggressively the sector has been sold down, noting it was “the worst performing sector on the ASX in 2025,” which he believes has created opportunity because “the starting valuations are really quite attractive.” 

He also pointed to history, highlighting that after a similarly weak period in 2022, “you had a circa 50% total return over those two years.” 

McCarthy and Macleod also favoured healthcare, but framed the opportunity as structural rather than cyclical. They said “the healthcare sector currently offers some of the most attractive risk-adjusted returns,” supported by “ageing populations and the shift toward preventative medicine.”

Financials featured more selectively. 

Welch argued that while valuations are elevated, parts of the sector continue to surprise, noting that “banks (excluding CBA) have continued surprising positively,” with scope for “further positive earnings revisions given a robust economy and higher-than-expected inflation.”

Which part of the market looks crowded or fully priced?

On valuation, the managers were more aligned than not. Despite different investment styles, there was broad agreement that parts of the ASX now look stretched, particularly where prices have moved ahead of earnings and expectations leave little margin for error.

Banks: the most obvious pressure point

Banks were the most consistently flagged area of concern. 

Weick questioned the investment case at current levels, arguing that valuations no longer stack up against fundamentals, “We struggle to see the investment case with valuations currently tracking where they are.” 

Pointing to limited earnings growth and rising costs. In his view, recent performance has been driven more by capital flows than improving fundamentals.

McCarthy and Macleod shared that concern, grounding it in valuation history. 

“It goes without saying that the banks are the clear area of overvaluation in the Australian market.”

Noting that “prices have appreciated by over 75% from their 2023 lows to their highs in 2025 whilst earnings have stagnated,” leaving the sector increasingly exposed as momentum fades and marginal buyers become scarcer.

Welch also acknowledged that banks look expensive overall, but framed the issue less as a one-size-fits-all valuation call and more as a question of selectivity within the sector. He noted that “bank valuations look expensive relative to their own history,” arguing that outcomes are becoming increasingly dependent on selectivity within the sector rather than broad exposure.

Broader valuation risk beyond banks

Beyond financials, Goode widened the lens, arguing that valuation pressure is not confined to one sector. 

“The larger end of the market does look fairly fully valued to us on around 17 times earnings for what looks like single-digit EPS growth at an index level.” 

Particularly when compared with small industrials offering much stronger growth. 

He also cautioned that parts of the resources sector are “starting to look pretty overbought,” with recent share price moves “dwarfing those underlying commodities,” adding that “there’s some FOMO at play there.”

Welch reinforced the idea that valuation risk is now being exposed through uneven earnings outcomes. He noted that while earnings expectations have improved, “entirely driven by the resources sector,” with technology and healthcare “particularly vulnerable” as elevated valuations collide with ongoing earnings disappointment.

McCarthy and Macleod added that recent moderation in share prices suggests some crowded trades may already be losing momentum.

Share two high conviction stock picks for 2026 and explain why?

Lucas Goode, IML

Australian Clinical Labs (ASX: ACL)

Goode highlighted valuation support after a sharp sell-off, noting the stock “traded off heavily last year,” while operational improvements mean it is “trading on less than 12 times earnings,” which he sees as “way too cheap” for a best-in-class operator.

Cobram Estate Olives (ASX: CBO)

He described Cobram as “the world's largest vertically integrated producer of olive oil,” arguing the market is “seriously underestimating the scale of the opportunity in the US,” with “decades worth of growth runway” still ahead.

Shaun Weick, Wilson Asset Management

ECHOIQ (ASX: EIQ)

Weick backed Echoiq for its commercialisation potential, noting it is “using AI-based algorithms to perform scans over echocardiograms,” with regulatory approval expected soon and scope to “scale towards that first revenue point.”

Lindian Resources (ASX: LIN)

He framed Lindian as “a highly strategic asset” in critical minerals, arguing it is “very well placed to secure offtake and floor price style arrangements” as global supply chains are reshaped.

Stuart Welch, Alphinity

BHP Group (ASX: BHP)

Welch sees BHP as a core way to access earnings leadership, noting it “provides leverage to copper, iron ore and metallurgical coal,” supported by “quality management and strong balance sheet.”

National Australia Bank (ASX: NAB)

He backed NAB on earnings momentum, noting banks have “reasonably consistently had earnings expectations upgraded,” with NAB benefiting from “a robust Australian economy and higher-than-expected inflation.”

Joe McCarthy and Alastair Macleod, Elston

Cochlear (ASX: COH)

They believe Cochlear is “positioned for a strong 2026,” citing a new implant suite and that “the material expansion of the eligibility criteria extends their runway for growth.”

Flight Centre (ASX: FLT)

They see Flight Centre as a recovery play, noting prior headwinds “have subsided,” with the stock now “trading on a low teens P/E on cyclically depressed earnings.”

Australia didn’t do well in 2025, finishing 2nd last out of 24 major stock indices. What is your argument for 2026 being a better year for ASX 200?

None of the managers attempted to gloss over Australia’s weak 2025 performance. Instead, responses to this question were cautious and qualified, reflecting the reality that index-level outcomes often obscure very different experiences beneath the surface.

Goode was careful to separate index-level performance from what was happening beneath the surface of the market, particularly given his focus on smaller companies, noting the role resources played in driving returns.

“The small ordinaries actually had a pretty great year in 2025.”

Rather than forecasting an index rebound, Goode argued conditions remain supportive for smaller industrials, pointing to a healthy consumer backdrop, strong business credit growth and the view that interest rates are unlikely to rise further.

Weick resisted making a bullish index-level call, arguing that headline ASX 200 returns could face some headwinds given his stance on bank valuations and limited earnings growth. Instead, he sees leadership shifting across sectors as earnings dynamics change.

“We think the baton is passing from banks to resources this year. It’s going to be that tussle between the banks and resources which provides a great environment for active stockpickers”

Welch approached the outlook for 2026 with caution, emphasising that Alphinity avoids broad market forecasts and instead focuses on company-level fundamentals. While he stopped short of making a bullish call, he sees conditions improving if earnings continue to do the heavy lifting.

“Predicting the outlook for the market is inherently challenging and risky. The case for 2026 rests on a genuine earnings inflection after years of downgrades.”

Even so, elevated starting valuations mean earnings will need to do the heavy lifting.

McCarthy and Macleod stepped back from the short-term scoreboard altogether, arguing that Australian equities continue to earn their place as a core allocation based on long-term outcomes, not calendar-year rankings.

2025 left Australia well behind its global peers, but 2026 isn’t about making up lost ground. It’s about understanding where earnings are improving and being selective about where capital is put to work.