MENU
 

PRE TAX NTA |$3.76

Value as at close of business on 17 January 2024

Perpetual’s Aboud says bet on balance sheets in turbulent markets

Perpetual’s star stock picker Anthony Aboud says companies with strong balance sheets will finally be rewarded for their discipline in an environment of rising interest rates and global market upheaval.

Mr Aboud, who helps oversee Perpetual’s long-short strategy, is among the portfolio managers that will present their best stock ideas at the Sohn Hearts & Minds event in Hobart on Friday.

He is making his second appearance having tipped Corporate Travel Management as a short idea at the inaugural event in 2016, and this year his message is that corporate conservatism will prevail.

“We think that balance sheets, for the first time in a while, matter,” Mr Aboud said, as he pointed to the August earnings season as evidence of a shift toward exalting financial strength.

“Transurban and Dexus disappointed with their EPS [earnings per share] guidance because the cost of debt was higher. That is going to be a slow-moving beast because a lot of companies have hedged interest costs so as that debt rolls off it becomes a headwind.”

On the flipside, he says companies that are net cash are all of a sudden in a good position.

“McMillan Shakespeare, A2, Omni Bridgeway and oOhMedia! all announced buybacks. That’s because they can.”

Mr Aboud said that in an uncertain and complex macro environment balance sheet flexibility will give companies an edge.

“When things are cheap enough companies with cash can buy back stock and that can put you in good stead.”

Perpetual’s equity fund managers have a long history of obsessing over balance sheets. They also have a reputation as value investors. But Aboud is quick to clarify that it doesn’t mean they look at old world “cement mill” businesses.

“We see value in some of the growth stocks that have de-rated a lot and property trusts that have de-rated massively because of interest rate expectations,” says Aboud.

This year has been dominated by macro forces as rising inflation, and the response to it by central banks, drives market performance and sectors. It was also a good one for the long-short fund.

According to the Mercer survey, Perpetual’s long-short share plus fund eked out a 3.8 per cent gain over the year to September 30, 2022, compared to an 8 per cent decline in the S&P/ASX 300. Over both three and five years, the strategy Aboud oversees has delivered a 9.8 per cent annual return, compared to the market’s 2.7 per cent and 6.7 per cent returns.

Aboud said the fund succeeded by shorting non-profitable tech stocks that he described as “ridiculously overvalued” such as Peloton and Zoom, while also betting against e-commerce names on the ASX, some of which are now lower than their pre-COVID-19 levels.

The hedge fund manager said a total reversal in fortunes for the pandemic winners is not surprising as their success spurred investment from competitors.

“The biggest threat to companies is unknown competition. That usually gravitates to hot sectors, so incumbents end up in a worse situation than they were at the beginning.”

The e-commerce stocks, he said, have faced added pressure from the cost of Google Adwords as larger bricks and mortar players muscle in on their digital turf.

“So there was a squeeze on the top and the bottom line as the COVID [sales surge] was rolling off.”

But the challenge with shorting fast-growing tech stocks is getting the timing right. Aboud utilised strict stop-loss limits on trades, but then added to positions when they were working. The patience to wait for the interest rate environment to change was also required.

“We thought once interest rates got off zero, markets would start focusing on the sustainability of the business.” But the beaten-up tech sector is now where there is money to be made on the long side, he said.

“Where the opportunities are is usually where everyone’s running away from and that is long duration stocks.”

It didn’t all go to plan though in 2022. Aboud said positions in non-bank lenders haven’t worked out, and he will be more apprehensive when companies in a single industry simultaneously storm the market to float.

“It’s a bit of a red flag,” he said, citing aged care as another example.

Aboud will be presenting a long idea this time at the Sohn event, and will steer clear of making grand predictions about the future.

In a market where the macro has been such a powerful force, stockpickers need to resist the urge to become experts on everything from epidemiology to geopolitics to inflation, he said.

“Everyone gravitates to the narrative of the day and becomes an expert, but it doesn’t necessarily help you unless you take it, move forward and try and predict the future.

“That’s a long way of saying that you have to wake up every day with an open mind. If you start becoming an expert on a topic, it becomes very hard for you to shift your view.”

His view is shifting to one in which the macro indicators are deflationary. But central bank policy is still the main game for investors.

In that regard, there are two big questions that will drive markets in the near term: the first is how deep a recession has to be before the Federal Reserve enacts the so-called Fed put and comes to the market’s aid.

“The [price of the Fed put] is lower than it has historically been. But how much pain will need to occur before it’s exercised?”

The second is how responsive central banks will be if parts of the financial system break. “When interest rates rise as quickly as they do, things will go bump in the night that you don’t know about.”

The Australian Financial Review is a media partner of sohnheartsandminds.com.au

 

 

This article was originally posted by The Australian Financial Review here.

Licensed by Copyright Agency. You must not copy this work without permission.

Disclaimer: This material has been prepared by AFR, published on 17 November 2022. HM1 is not responsible for the content of linked websites or content prepared by third party. The inclusion of these links and third-party content does not in any way imply any form of endorsement by HM1 of the products or services provided by persons or organisations who are responsible for the linked websites and third-party content. This information is for general information only and does not consider the objectives, financial situation or needs of any person. Before making an investment decision, you should read the relevant disclosure document (if appropriate) and seek professional advice to determine whether the investment and information is suitable for you.

Recent Posts

Read the latest insights
A curated list of HM1 investor updates, portfolio news and other interesting articles.
Read More
Nine top stock picks to prepare your portfolio for 2025
Health care, ride-sharing, and the emerging world of YouTube entertainers are among the industries leading investors have picked for growth in 2025.
Resources fundies reveal top picks ahead of ‘stellar’ 2025
Some of Australia’s biggest resources funds are gearing up for a bumper start to the new year.
Qiao Ma: finding killer companies, surviving the GFC & why founders win
Qiao Ma, Portfolio Manager of the Munro Partners joins Owen Rask on The Australian Investors Podcast.
10 top fund managers reveal their long-term stock picks
With valuations stretched and geopolitical tensions high, the new year offers plenty of potholes for investors. 
 

Nine top stock picks to prepare your portfolio for 2025

Health care, ride-sharing, and the emerging world of YouTube entertainers are among the industries leading investors have picked for growth in 2025.

Read More
January 21st, 2025
 

Resources fundies reveal top picks ahead of ‘stellar’ 2025

Some of Australia’s biggest resources funds are gearing up for a bumper start to the new year.

Read More
January 6th, 2025
 

Qiao Ma: finding killer companies, surviving the GFC & why founders win

Qiao Ma, Portfolio Manager of the Munro Partners joins Owen Rask on The Australian Investors Podcast.

Read More
January 6th, 2025
 

10 top fund managers reveal their long-term stock picks

With valuations stretched and geopolitical tensions high, the new year offers plenty of potholes for investors. 

Read More
December 28th, 2024
 

Rikki Bannan – Don’t get caught up in momentum

Conference Fund Manager Rikki Bannan, Executive Director at IFM Investors, joins Equity Mates to discuss her standout 2023 stock pick, Telix, and explore what opportunities lie ahead.

Read More
December 19th, 2024
 

Professor Jane Butler: Sparking Hope for Spinal Cord Injuries

In this episode of the Hearts & Minds Podcast, we sit down with Professor Jane Butler to discuss her groundbreaking research into spinal cord injuries.

Read More
December 10th, 2024
 

Nick Griffin – The Nvidia story is not over

Nick Griffin, Founding Partner & Chief Investment Officer of Munro Partners joined the Equity Mates podcast in their Summer Series.

Read More
December 9th, 2024
 

HM1 CEO Succession

Hearts and Minds Investments Limited advises that Paul Rayson intends to retire from the position of Chief Executive Officer, effective 19 February 2025.

Read More
December 5th, 2024
 

Trump unifies top investors in decade-long bullish outlook for US

Nick Moakes, CIO of the $72 billion Wellcome Trust, told the conference that too many investors were banking on a return to the ultra-low interest rates that prevailed over the past decade.

Read More
November 20th, 2024
 

These rock-star stock picks could get markets talking next year

Eleven rock stars of international and local funds management took to stage – each tasked with picking and pitching one company whose shares will take off over the next year.

Read More
November 18th, 2024
 

Is anyone brave or stupid enough to bet against America?

Stock pickers have been punished for betting against the US. The choice between consensus and contrarianism on American exceptionalism is now harder than ever.

Read More
November 17th, 2024
 

Sohn: NYSE-listed Estee Lauder’s Northcape Capital pick

Northcape Capital’s Fleur Wright this gives a rare opportunity to buy a high quality company at an attractive price.

Read More
November 15th, 2024
 

Sohn ASX stock pick: Ellerston Capital’s Chris Kourtis backs Perpetual

Chris Kourtis has put his biggest bet on embattled Perpetual – picking one of the most hated stocks on the ASX – that he believes will soon be the ‘cheapest listed asset manager of scale in the universe’.

Read More
November 15th, 2024
 

AI start-ups a threat to incumbent big companies

Paul Bassat predicts emerging artificial intelligence companies will disrupt sectors and overtake established incumbent companies just as rapidly as the seismic shifts that took place when the internet emerged in the mid-1990s.

Read More
November 15th, 2024
 

Howard Marks and Sohn’s big stars reveal seven rules for investing

Among the stock picks and stunts at the Sohh Hearts & Minds event, Howard Marks and Nick Moakes provided investors with long-term rules for playing markets.

Read More
November 15th, 2024
 

Sohn investors position for bullish but bumpy Trump ride

Australia and the rest of the world must adjust to a new Trump presidency that will deliver an expected bull market but also disruption, with the leader in waiting prepared to “create pain” to get his way.

Read More
November 15th, 2024
 

Sohn stock picker experts name best shares to invest in for year ahead

‍Don’t overlook down and out silver miners, legacy skincare brands ready for a revival and a big financial company suffering from a severe case of shareholder wealth destruction.

Read More
November 15th, 2024
 

Eleven stock tips from Sohn to get you through 2025

“There’s no finer place for the finance festival than in the festival city,” said Matthew Grounds. He, along with fellow Barrenjoey co-executive chairman Guy Fowler and investor Gary Weiss, is one of Sohn’s driving forces.

Read More
November 15th, 2024
 

Sohn Hearts & Minds Investments fund targets $1.5bn valuation

‍Hearts & Minds Investments chair Chris Cuffe is hoping for HM1 to grow to more than $1.5bn in the next five years.

Read More
November 14th, 2024
 

Galaxy Digital CEO Mike Novogratz believes bitcoin will hit $US100k

Bitcoin’s bounce to record highs in recent days is only the beginning of a fresh surge higher for cryptocurrency, says US billionaire Mike Novogratz.

Read More
November 9th, 2024
 

Why this New York hedge fund manager sees opportunity in European stocks

Influential New York-hedge fund manager Ricky Sandler will turn to Europe for his next stock pick.

Read More
November 6th, 2024
 

Antipodes’ Ross says short-term wealth hinges on US election

The portfolio manager says defensive stocks pose a bigger risk than the magnificent seven for investors that are overexposed to the American sharemarket.

Read More
November 5th, 2024
 

Concentration risk key for investors: Antipodes Partners’ Vihari Ross

The concentration risk in global stock indexes that has built up during the strong rise over the past year must now be a key consideration for global investors, according to Vihari Ross.

Read More
November 5th, 2024
 

The fundie betting big on China – with help from AI

Mr Mehta is sticking to his well-worn strategy: he’s hunting for companies across Asia that aren’t battling intense competition and have management teams focused on costs, cash generation and high payouts to shareholders.

Read More
November 5th, 2024
 

Why this fundie wants you to ‘wince’ at his stock picks

When fund managers come to pitch their favourite stock at the annual Sohn Hearts & Minds conference, there are two ways they can go: they can play it safe, or they can take a risk and shock the room.

 

Read More
October 29th, 2024
 

IFM Investors’ Rikki Bannan backs small cap investments to rebound after mixed performance

IFM Investors executive director Rikki Bannan believes this year could be a good one to invest in some select small cap stocks.

Read More
October 27th, 2024
 

Meet the 2024 Conference Managers

Following a global search, the Conference Fund Manager Selection Committee is pleased to share eleven new managers for 2024. 

Read More
October 22nd, 2024
 

Chris Kourtis is on a winning streak. Here’s his next ASX pick

Chris Kourtis of Ellerston Capital thinks he’s found another winner and thinks it’s the last chance to have a bite at the cherry before the strategy plays out.

Read More
October 21st, 2024
 

Why Ellerston Capital’s Chris Kourtis plans to back a ‘hated’ stock

Chris Kourtis of Ellerston Capital plans to tip one of the “most hated” stocks in Australia when he presents at the 2024 Sohn Hearts & Minds Conference.

Read More
October 21st, 2024
 

Alex Pollak champions rewards of disruptive investment

Alex Pollak’s funds management company Loftus Peak rode the Nvidia wave and he is now looking at more opportunities in disruptive industry stocks.

Read More
October 14th, 2024