Veteran investor Geoff Wilson says the market is nervously waiting to see whether the promised stimulus from interest rate cuts and tax refunds comes through in the latter stages of the financial year, after reporting season saw a rotation out of some high-growth stocks into domestic cyclical stocks that will benefit from GDP growth.
Mr Wilson, the founder of Wilson Asset Management, described reporting season as disappointing, and said many investors were betting economic growth could pick up in the December quarter.
“There’s still a significant amount of uncertainty. This year, more than most, there’s a lot of hope,” he said.
“The question is where we will see that pick up in domestic consumption. Normally it takes six months to flow through to the economy.”
Mr Wilson was speaking after the release of earnings for the Future Generation listed investment companies, which harness the best ideas from a range of top Australian fund managers and plough all of their returns into youth charities. The LICs were founded by Mr Wilson.
Future Generation Australia, which focuses on Australian stocks and is chaired by Jonathan Trollip, delivered an investment portfolio return of 13.6 per cent for the six moths to June and invested $4.6 million in a large group of charities focused on at-risk youth and youth mental health.
The globally focused Future Generation Global, chaired by Belinda Hutchinson, delivered an investment return of 12.5 per cent over the past six months, and invested $4.9 million in charities.
Managers in the LICs include Magellan, Cooper Investors, Manikay, Paradice Investment Management, Caledonia, LHC Capital and VGI Partners.
Mr Wilson said the Future Generation returns were good in a difficult market for active fund managers.
“We’ve had less volatility than the market but the headline performance is a little bit behind the market,” he said.
“It’s been a difficult year for active managers in terms of adding value.”
In addition to receiving the services of fund managers for nothing, the Future Generation funds, which are run by Louise Walsh, receive a range of services including brokerage, insurance and audit from groups including Steadfast, CommSec and Pitcher Partners.
All told, the fund managers and service providers gave up $12.6 million worth of fees on an annualised basis.
Mr Wilson said this had allowed the LICs to make a strong contribution to its charities.
“The organisations we support made significant in-roads in areas that are quite significantly under-funded in an Australian context.”
One of the top contributors to the performance of Future Generation Global was Cooper Investors, whose global strategy returned 14.75 per cent in the year to June 30, about 340 basis points ahead of its benchmark.
Portfolio manager Allan Goldstein said one his top picks during the year had been New York Stock Exchange listed group Iqvia, which is one of the largest providers of technology and drug trials for pharmaceutical companies.
He described it as “a quality business run by really quality people, but it’s hard to see at the surface”. Cooper’s investment strategy involves a strong focus on the behaviour of management, and Mr Goldstein said Iqvia chief Ari Bousbib was a leader they had followed for a long time.
The stock is up almost 35 per cent since the start of the year.
A more recent investment is Fiserve, a leading provider of technology for the US banking sector. A merger announced by the company earlier this year crystalised Cooper’s long interest in the company.
“We got straight on a plane and saw the management again. We know they weren’t empire builders for the sake of it.”
The stock has soared 47 per cent since the start of 2019.
Mr Goldstein said that like many in the community he had a strong personal commitment to the work of Future Generation and the challenge of properly funding mental health for young people.
“We see the dollars getting a big bang for the buck,” he said of Future Generation’s work.
by James Thomson.