Dion Hershan on taking a different view (and 1 stock and 1 sector he likes right now)
In this Rapid Fire, Yarra Capital Management's Dion Hershan, shares his hot take on markets and why validation reigns supreme
Whilst the hunt for opportunities is enjoyable, there is nothing like the validation of getting it right – particularly when you've taken a different view to the market – according to Dion Hershan from Yarra Capital Management.
It's worth mentioning that Hershan makes that assertion in the context of the team at Yarra and the collective reward it shares.So, what is the team focused on at the moment? The hot debate in the war room centres on inflation, which, whilst trending lower, is "not low enough or persistent enough for rate cuts in the short term," says Hershan.
That outlook feeds into his view on markets and the stocks and sectors he likes right now (as well as those he is underweight).
To find out what he and the Yarra team are favouring, check out the Rapid-Fire interview below, which also includes Hershan's take on the "Mundane Seven."
Please note that we will publish a Views from the Top interview with Hershan tomorrow. This interview was recorded on 28 March 2024.
Edited Transcript
Chris Conway: Dion, thanks very much for sitting down with Livewire and agreeing to do a Rapid Fire.
Dion Hershan: Thanks for the opportunity.
Chris Conway: First question, what's the biggest issue being debated in the Yarra war room right now?
Dion Hershan: Without a doubt, it's inflation and what it means for interest rates. Inflation is trending down, but in our opinion, it's not low enough or persistent enough for rates to be cut in the short term.
Chris Conway: Follow-up question on that, Dion - True or False: inflation will remain stickier than markets are expecting?
Dion Hershan: True.
Chris Conway: Who are the “Mundane Seven” and why are you concerned about their future growth?
Dion Hershan: So, we've described the seven biggest companies in Australia as being reasonably mundane, arguably dinosaurs. I'm referring to the four big banks, where their earnings peaked about seven or eight years ago. Their returns have been in serial decline since, and they’re mature businesses with limited growth prospects.
The other area that we characterise as being reasonably mundane is actually the big resource companies, just recognising the predominance of their earnings comes from iron ore. We've probably seen peak steel in China. Supply of iron ore is growing reasonably quickly, the Chinese economy is in turmoil. That looks like a really difficult place to invest from here forward.
Chris Conway: Favourite sector right now?
Dion Hershan: I’d probably say it's tech. That's not a thematic call. It's based on the individual companies we've chosen to invest in.
Chris Conway: What's one stock that you are filling your boots with right now?
Dion Hershan: We're excited about the prospects for Pexa Group (ASX: PXA), which is a tech company. It's been left behind, effectively. They've got a monopoly business in Australia that's an awesome franchise. They've had limited success taking that model to the UK. Our view is within the next 12 months, it will either work or they will exit. Either way, we think there are strong returns for investors.
Chris Conway: And one sector that you would buy if the price was right?
Dion Hershan: We've got a reasonable amount invested in REITs today. Our view is, in some respects, the recent rally is ahead of the fundamentals. If we saw a meaningful pullback in some of the REITs, due to changes in interest rate expectations, devaluations, or rent coming under pressure, we'd see that as an opportunity to add quality assets at big discounts.
Chris Conway: Dion, last question. As a seasoned stock picker, someone who's been doing this for a very long time, what gives you more satisfaction? Is it the hunt for the opportunity or is it the reward that comes when you get it right?
Dion Hershan: I think for the team, it's the validation. I mean, we work hard, we enjoy the hunt. We do a lot of analysis, but it is gratifying to know that you've taken a view, often a different view to the market, and it plays out.
Chris Conway: Thanks so much for sitting down with Livewire.
Dion Hershan: Thanks for the opportunity.
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My passion is equity research, portfolio construction, and investment education. There are some powerful processes that can help all investors identify great opportunities and outperform the market, and I want to bring them to life and share them...
Expertise
My passion is equity research, portfolio construction, and investment education. There are some powerful processes that can help all investors identify great opportunities and outperform the market, and I want to bring them to life and share them...
Expertise
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