Which fundies are leading the pack for the top stock-picker prize?

Mia Kwok

Livewire Markets

Here we are at the Q1 checkpoint to see how our peloton of fundies has performed so far. Who is leading the pack and who will be left in the dust this year? But first, a recap. At the end of last year, Livewire Markets invited our elite stock pickers to share with us their top stock picks for 2021. We then pit them against each other in a super-portfolio (a hypothetical one, of course) to see how they perform. 

In 2019 our fundies' stock picks returned an average of 59% over the year, and even during the market downturn of 2020, they hit an average of 13.88%, well and truly outperforming the benchmark. 

I'll tell you this much, the competitive spirit is strong among our fundies, some of whom wanted to know straight away how they were ranked against their peers. 

Here are the 10 fundies in the race for 2021:

  • Ben Clark, TMS Capital
  • David Allingham, Eley Griffiths Group
  • Vihari Ross, Magellan
  • Kelli Meagher, Sage Capital
  • Chris Demasi, Montaka Global Investments
  • Tom Richardson*, Paradice Investment Management
  • Adam Lund*, Spheria Asset Management
  • Olivia Salmon, Lennox Capital
  • Dr Bianca Ogden, Platinum Asset Management
  • Matthew Kidman, Centennial Asset Management

*Where fundies are no longer speaking to their top picks, their colleagues have jumped into the fray. 

Well, they can rest easy knowing they've outperformed both benchmarks. Each of our fundies was allocated $1,000 - meaning we have a starting fund of $10,000 for this mock-portfolio that we've tracked using Sharesight

Source: Sharesight.

The ASX200 has returned 1.59% this quarter, while the S&P500 has delivered 7.36%, but the fundies' picks have outstripped both benchmarks with a return of 13.15% over Q1. What a performance! 

Ten fundies dared to compete, but only one can win the race. Let's see how they've each fared against each other so far, what's changed about their stock picks, and who has dropped out of the race...

#1 Mortgage Choice (ASX:MOC)

Adam Lund, Spheria Asset Management

Performance: ASX:MOC +37.78% 

In 1st place, we have Mortgage Choice, which is top of the leaderboard this quarter by way of a takeover. On 29 March, REA Group announced it wanted to acquire 100% of outstanding shares for $1.95, pushing the returns for MOC to a neat 38% at the end of Q1. 

Now, it looks like MOC will be "taken off the board", as Lund said. So, the stock won this round, but if the REA takeover goes through then MOC will be off the leaderboard by this time next quarter. When it was time to pick the stocks last year, Lund wasn't aware of the takeover, but it was a definite post-Royal Commission possibility. 

"We thought a strategic play was a risk. the obvious merger with Aussie Home Loans (part-owned by CBA) seemed to be off the table as they decided to merge with Lendi. REA saw the opportunity to grow its relatively modest market share of 1.5% by acquiring MOC," said Lund. 

"Prior to the takeover, the stock was trading on eight times earnings with a net cash balance sheet which made it very attractive," he said. 

The Mortgage Choice board has unanimously backed the scheme and a shareholder meeting is expected in June 2021 to make a final decision. The scheme is still subject to initial court approval. 

#2 Galaxy Resources (ASX:GXY) and Pilbara Materials (ASX:PLS)

Tom Richardson, Paradice Investment Management
Performance: ASX: PLS +20.11%; ASX:GXY +13.45%

Richardson lauds the outperformance of the broader commodities sector as a demand-side success story. 

"We saw a surge in the sales of electric vehicles, and that was really driven by Europe and China. As we enter into 2021 the backdrop has become even more exciting," he said. EV sales are a key indicator of the ongoing demand for underlying minerals, like lithium. 

But it's actually a supply-side game that is pushing Galaxy and Pilbara ahead. Production from their primary competitor is not going to hit the market until 2024 and so tight supply is keeping prices high. 

"It just shows how long it takes for some of this supply to come into the market. So while there's a lot of talk of lithium around, and a lot of projects that will be needed and will come into the market, we're in a bit of a gap year, which is going to send the prices a lot higher in our minds," said Richardson. 

Pilbara Materials has increased by 20% since the end of Q4 last year, while Galaxy Resources isn't far behind with a 13% lift. 

#3 Cytomx Therapeutics (NASDAQ:CTMX)

Dr Bianca Ogden, Platinum Asset Management
Performance: NASDAQ:CTMX +18.26%

Cytomx Therapeutics is an oncology-focused medical innovation company. Their current research goes into making sure the drug only targets cancer cells and not the surrounding healthy cells - a difficult proposition, as Dr Odgen explains. 

"(Cells) build these masks to protect the drug from being active. But around the tumour the mask gets cut away, while in healthy cells it doesn't. That means that the drug band is only active where the tumour is. That's what they have to tease out in the clinical trials now," said Ogden. 

It's the kind of stock that plays neatly into the rise of healthcare and technology, coming up with an 18% increase on the Q4 price last year. And while there might be other players in this space, Odgen has been watching this stock for its relative valuation. It's currently trading at US$7.73 per share with a US$450 million (AU$660 million) market cap. 

"There might be a lot of other competitors in the same space and have a great level of technology and research behind them, but this has the best valuation," she said. 

CytomX Therapeutics latest funding was a US$90 million investment from a post-IPO equity round in January, a move Ogden described as "quite exciting". 

#4 Blackstone Group (NYSE:BX) and Carlyle Group (NYSE:CG)

Chris Demasi, Montaka Global Investments

Performance: NYSE:BX +16.91%; NYSE:CG +18.18% 

Last time, we just couldn't get Demasi to commit to one stock as, for him, Blackstone, Carlyle and KKR is the golden trifecta of winning stocks. They are all using the same playbook for massive gains. 

In fact, he's now upped the ante and thinks these stocks will be decade-long winners. 

"In our minds. They're the highest quality businesses and we think they're going to be winners looking out over the next decade or more," he said.

"Their value proposition means their clients find very, very difficult to switch away from them and that makes a very strong business. It gives them advantages and a 'moat' that a lot of smaller asset managers just won't ever have, and so they keep collecting a disproportionate amount from the flows in the industry," he said. 

Carlyle Group and Blackstone Group are alternative asset managers. 

#5 Primewest Group (ASX:PWG)

David Allingham, Eley Griffiths Group

Performance: ASX:PWG +12.40%

Primewest Group is a private fund manager in the real estate game, and real estate has turned out to be a surprisingly good COVID-recovery play. 

"COVID will have damaged certain property asset classes less than people thought," said Allingham. Retail has been coming back, people are returning to the office and Allingham sees a lot of upside still to come from Primewest Group. 

"They actually raised capital, around $50 million, to help fund their growth. So they've got a very strong pipeline of acquisitions and they looked to raise some capital to fund acquisitions and to co-invest alongside their investors. The balance sheet is now circa $70 million in cash," he said.

And rumour has it that they're looking to list their agricultural fund - so we could see a Primewest Agricultural REIT on the horizon in time.  

#6 Corporate Travel Management (ASX:CTD)

Olivia Salmon, Lennox Capital

Performance: ASX:CTD +12.06%

Another COVID-recovery play has been paying off and Salmon is on top of every detail, from the CEO selling down some shares ("Something I'm very comfortable with," she said) to a rising trend of business acquisitions. 

"We thought this was the number one pick for a reopening trade. You had seen all of the leisure travel agents, the likes of Flight Centre and Webjet really take off... but it seems like corporate travel hadn't had that same sort of level of share price appreciation," said Salmon.

"The worries that Zoom calls and phone calls are the way of the future, I think, is way overblown. So nothing's changed, still the top pick, still love it," she said.  

But there's more driving this stock than a whim to pop into head office. Salmon has been keeping track of mergers and acquisitions data and her thesis relies on the uptick in M&A to continue. 

"M&A is going to be a huge theme, for not only the Australian market but also in overseas markets in 2021. People are worried about levels of organic growth and want to make acquisitions to enhance their business and for that, you absolutely have to physically travel and physically meet people," she said. 

#7 Sonic Healthcare (ASX:SHL)

Kelli Meagher, Sage Capital
Performance: ASX:SHL +10.41%

Sonic Healthcare provides pathology services, and so that means they have played an integral role in COVID testing across Australia. 

"Despite the fact that testing the COVID will come down as the vaccine rolls out, the rollout is unlikely to be far from smooth sailing. And hence, the requirement to continue testing. COVID is probably going to continue for quite a bit longer than perhaps the market was anticipating at that point," said Meagher. 

I guess there had to be some upside to our dismal vaccine rollout. But even once the need for mass COVID-testing subsides, that's when Sonic can shift the business up a gear in other areas. 

"The underlying business - pathology - is just the standard routine test. We'll come back and make a recovery as well because those tests have been in decline last year during COVID lockdown. So it's kind of a nice balance between COVID winner, but also as a rebounding thesis," said Meagher. 

#8 Tyro Payments (ASX:TYR)

Ben Clark, TMS Capital
Performance: ASX:TYR +3.14%

Tyro is doing well to be in positive territory after an abysmal start to the year. Tyro faced a truly apocalyptic outage in mid-January across all its terminals. 

"Murphy's Law," said Clark. 

"I think two weeks after I tipped this, Tyro had a countrywide network outage. It was the first in their 18 year history. So the timing was almost impeccable," he said. 

"It wasn't a minor outage. It was an extremely major outage."

Clark has been impressed with how management has handled things and how quickly the business managed to turn this crisis around. Now, he reports, applications from new merchants are almost back to pre-outage levels and the attrition rate remained at historic levels. 

But is it still a winner? The outage took the shine off this stock and while Clark is still a big believer in the business, he suspects that it might be a 2022 winner instead. Better luck next year, Ben!  

#9 Downer Group (ASX:DOW)

Matthew Kidman, Centennial Asset Management
Performance: ASX:DOW -2.06%

Kidman, who co-hosted the Fundies' Picks at the end of last year, was wise to preface his stock pick with the tortoise and the hare fable. With Downer Group down 2.06% at the end of Q1, there is still time for this tortoise to win the race. 

"They're restructuring their business. There's more to come and I would expect them, over the period, to make more announcements about divestitures," said Kidman. The end goal for Downer, said Kidman, is to focus on government, long-term contracts. 

"It'll be a much, much steadier type of business rather than a cyclical business because they'll be tapped into various infrastructure projects and infrastructure style investments," he said. 

The other business with the Downer Group, Spotless, is an events-driven business and so it will see a strong recovery through the year. 

#10 Intercontinental Exchange (NYSE:ICE)

Vihari Ross, Magellan
Performance: NYSE:ICE -2.88% 

And at the back of the peloton is Intercontinental Exchange (ICE). But far from being concerned about current returns, Ross is excited about the growth opportunities. 

"ICE has planned to IPO Bakkt (a Bitcoin futures and options business) in the next quarter at a US$2.1 billion valuation and with a retained 65% interest, and ICE also own 1.4% of Coinbase (the largest US crypto currency trading platform) which is also planning an IPO with valuation of over US$30 billion speculated," she told us over email. 

These two ventures follow on from big plans for digitising a mortgage business that ICE recently acquired. 

"The stock is attractive with a combination of high quality, strong, visionary leadership, solid growth (with an upside skew), and a reasonable valuation," wrote Ross. 

"ICE is vertically integrated – meaning it controls the execution and clearing of derivative contracts – which enables the company to exert pricing power, attract volumes, and improve counter-party and systemic risk management," she said. Certainly a strong to be in if US inflationary pressures start to come through. 

The leaderboard

Here's an overview of how each stock performed, but for those watching on from the sidelines, remember we're only at Q1.  

Source: Sharesight. 

Fundies vs the readers...

The race isn't quite over, folks. 

Last year, we also surveyed our readers for their stock picks and we've created a mock-portfolio to rival the experts. You can see how the Readers' Picks performed from my colleagues:

We even put together a cheeky snapshot of our Fundies vs Readers, granted most of our readers are fundies too! 

Source: Sharesight. 

So far, so good. Our fundies are ahead with a 13.15% return, while small-caps have returned 6.94% this quarter. Meanwhile, large-caps are down 7.16% and global-caps are down 0.14% - not a great start for our readers. 

Last year our readers' large-cap picks made over 50% returns, but can our readers outwit, outplay and outlast the fundies this year? Only time will tell... 

What stocks are you backing in 2021? Tell us in the comments below. 


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Disclaimer: This article is for informational and educational purposes only, it is not a recommendation to buy or sell any of the securities mentioned. The views of the authors were current at the time of their interview and may have changed since then. 
*Quotes have been updated to better reflect CBA's position with Lendi. 

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Mia Kwok
Editor
Livewire Markets

Mia Kwok is a former content editor at Livewire Markets. Mia has extensive experience in media and communications for business, financial services and policy. Mia has written for and edited several business and finance publications, such as...

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