Morningstar – Emma Rapaport and Lex Hall
The past financial quarter has been a rocky time for Australian investors as markets navigate volatile shoals.
October posted the sharpest one-month declines for global equities since 2012 amid gnawing concerns over the durability of the economic cycle and escalating trade tensions between the US and China, not to mention Brexit and associated ructions in Europe. And Australian markets were caught in the wash. Weakness across the big four banks, in particular, hurt portfolios.
But it’s not all gloom and doom. A challenging period creates buying opportunities for investors who dare to embrace the rout.
To help you generate some ideas about where to invest $10,000 right now, we’ve tapped a panel of investment professionals for their insights. Their tips cover a range of sectors from mining services, to European financials and unlisted commercial property.
In no particular order, we’ve called on John Murray from Perennial Value, Franklin Templeton Investment Australia’s Peter Wilmshurst, and Hamish Wehl from Cromwell Property Group.
The views reflected here do not reflect those of the Morningstar research or investment management teams. Before exploring their suggestions, it’s wise to do your own research, consider your portfolio and consult a financial adviser.
Value stocks making a comeback
John Murray – Perennial Value
Founder and managing director of active management firm Perennial Value. Murray oversees a suite of seven equities products.
“After many years of tailwinds for growth and momentum on the back of easy money, we believe 2018 will represent a turning point back in favour of value. I would be investing $10,000 at the value end of the Australian stock market, even more so following the recent market sell-off. What we have seen in this sell-off is that momentum/growth stocks have moved from very expensive to expensive and value stocks have moved from good value to even better value now.
“One sector where we see considerable opportunities to buy good businesses at sensible prices and where they should benefit from a favourable industry thematic, lies within the mining services sector.
“In terms of the industry thematic, for any resources company, as each day of production passes, they own a declining resource. Ultimately companies must spend more money in order to find new discoveries to replenish this declining resource. Mining capital expenditure has declined some 60 per cent since its peak in 2012 as the resources sector has focused on balance sheet repair, asset optimisation and returning capital to shareholders. We are beginning to see this trend reverse and resource companies have now begun turning their attention to new projects to either maintain or expand production as their existing asset base begins to decline in production and/or grade. With cash generation and balance sheets in rude health, in the iron ore industry, for example, we have seen the likes of Rio Tinto (Koodaideri), BHP(Southern Flank) and Fortescue(Eliwana) all committing significant capital expenditure to large-scale projects due to begin development in 2019/2020.
“In turn, mining services companies will benefit from this increased spend. Perennial Value’s key holdings across the market cap spectrum include Ausdrill, ALS, Imdex, Monadelphous, Seven Group and Swick. Investing in this sector is not without risk, hence we have selected several companies to diversify away company-specific risk. Company-specific risk is also reduced in the sense that these exposures are typically part of overall stock numbers of about 60 across each of our micro-, small- and large-cap portfolios. Thus, we clearly see many other good value stock opportunities beyond mining services.”
