Wilson, Murray and Johnson: How they’re investing today

Livewire recently hosted an intimate investor evening where a handful of investors had the opportunity to hear how three local fund managers are investing today. The session covers the big picture view, investing strategy and also touches on a handful of stocks that look attractive (and a few that don’t).

Steve Johnson, Chief Investment Officer, Forager Funds 

On the overall market...

• The hubris of a rampant bull market isn’t there
• Investors are still living in the shadows of the GFC
• There’s a healthy level of scepticism out there
• Cheap stocks have rallied, expensive stocks have sold off. It’s a pretty level playing field out there.
• Johnson says: "It’s a time to be patient. It’s a time to stick with your core portfolio of good quality stocks."

On consumer debt in Australia...

• The RBA can’t raise rates without having an horrendous recession, given the level of consumer debt.
• The risks are asymmetrical. Rates can’t really go much lower, but if they go higher the consequences for a heavily indebted consumer could be significant.

A word of caution on growth stocks...

It’s not just bond-proxies that are sensitive to interest rates. Stocks with many years of growth priced in are also sensitive to long-term rates and should be treated with caution.

What Steve's been buying...

We haven’t bought a stock in the last six months

• In ’07, when it was hard to find good quality cheap stocks, he went for lower quality names. This was a mistake.
• He still thinks there’s enough nervousness out there to create another 20% pull-back.
• Johnsons says: "I don’t think you need to be loading up on anything that you think is going to double or triple, because those opportunities will come."

Geoff Wilson AO, Chairman, Wilson Asset Management 

On the overall market...

• The market isn’t cheap at current levels.
• Given the length of the bull markets, he’d like to have a reasonable amount of cash
• Wilson says: "We’re on borrowed time."

What Geoff's been buying...

Afterpay: "Great business, expensive – but growing at a phenomenal rate. It could be another REA if it succeeds."

Armidale Investment Corporation: A consolidation play. “Very impressed with the management team.”

What Geoff's been selling...

Wilson says he would be steering clear of the following stocks, primarily on valuation grounds.

1. Bapcor – 24x p/e
2. Corporate Travel Management – 32x p/e
3. Domino’s Pizza – 42x p/e

All well managed, but you’re paying an enormous price for them.

On cash levels...

• Currently holding 33% cash, but this compared to a long-term average of 34%.
• Current returns on cash are around 2%, which is “better than losing money.”

John Murray, Managing Director, Perennial Value Management

On the overall market...

• The economy is growing at a reasonable pace and importantly - corporate balance sheets are in good shape
• High gearing levels are a sign the bull market is nearing an end and gearing levels are not particularly high
• The market PE is high, but not overly stretched
• The euphoria of a bull market doesn’t seem to be present, which is a healthy thing
• The dividend yield for the borader market still quite strong.

Looking at stocks now compared to a year or two ago, it’s harder to find value.

Some comments on sectors...

• Based on recent visits Murray believes that both US and European economic growth could surprise to the upside. He thinks that there is the potential for rates to be higher than most people expect
• He still believes caution needs to be taken when considering an investment in interest rate sensitive stocks or 'Bond Proxies' 

What John's been buying...

• Clydesdale Bank: A cheap, straight-forward, cost-out story. It has a very strong balance sheet and should have the ability to return capital in the next few years. He believes it is a little bit off the radar for many investors.
• Murrays says: "A very good management team. The management team’s bigger than the company. Which is not a bad thing"

On current cash levels...

• John likes to be fully invested the majority of the time. His view is that good companies produce better returns over time than cash, and can grow dividends.

Interested in attending Livewire events?

Send us an email at team@livewiremarkets.com and we will let you know about our upcoming events.

Disclaimer: The information contained in this presentation is general in nature and should not be relied upon. Before making any investment or planning decisions, you should consult a licensed professional who can advise you whether your decision is appropriate for you. Contributors to this show may have commercial or financial interests in the companies mentioned.