Transcription of Finance News Network Interview with Ausbil Dexia Limited CEO and Head of Equities Paul Xiradis
Joining me today from Fund Manager Ausbil Dexia is CEO and Head of Equities, Paul Xiradis. Paul welcome back.
Paul Xiradis: Thank you, my pleasure.
We’ve seen a series of debt deals from Europe this year. What’s Ausbil’s outlook for the region?
Paul Xiradis: Look Europe is still a bit of a problem I must say. I mean there’s still a lot of uncertainty and that is what we are seeing each day because the market is reacting by headline, by headline. But I think there have been some decisive steps made just recently which is encouraging by the ECB (European Central Bank), and also seems to be supported by the Germans at this stage. So the outlook is still a bit murky and I think it’s still going to take some time for it to be resolved, but it’s certainly looking a lot better.
As a Fund Manager with several decades of experience, how do markets usually look like several years after a crisis of this magnitude?
Paul Xiradis: The crisis that we are experiencing right now is unprecedented really in modern times. The crisis has been going on for five years and as a consequence of that, we are now seeing asset values at extreme levels. And what I mean by that is that equities look very inexpensive and bonds, generally speaking, look quite expensive. So if you can look through that right now and actually take more of a 12 to 15 month view - maybe even a little bit longer, there are some fantastic opportunities in equities. And that’s certainly where you should be looking right now, in our view.
On the domestic front our market seems to be fixated with yield, with stocks like Telstra Corporation Limited (ASX:TLS) and Commonwealth Bank of Australia (ASX:CBA) the major beneficiaries. Why do you think we’ve seen the run up in these stocks?
Paul Xiradis: Yield has been a very dominant theme of late and it’s not just here in Australia, but globally. Now we have seen global players look for yield, generally speaking. And the reason for that is that interest rates are at very, very low levels - at levels that we have not seen in multi, multi years. So as a consequence of that yields become very important.
And Paul in your experience, do you think that the money will continue to flow into these stocks over the next quarter?
Paul Xiradis: Look it’s very possible that we’ll see that trend continue for a period of time. And part of the reason I say that is that there are a lot of global funds still being set and investing in some of these high income products. So the momentum is definitely there, but that is normally the blow-off period. You will see that once that’s filled, we’ll see valuations go to extreme levels and there will be other great opportunities in the market.
Now to resources. What’s Ausbil’s outlook for the sector?
Paul Xiradis: We, over the years have been very positive towards the resource sector, but we have softened our view of late. Part of the reason for that is that we do believe that growth, while it will continue to be reasonably positive, it’s going to be growing at a - global growth will be somewhat weaker than it has been in the past. So as a consequence of that we think that commodity prices aren’t likely to see rapid rises, as we have experienced in the past. So we’re a little bit more subdued, but having said that there are also some very good opportunities within the resource sector.
There’s been a lot of talk of the mining boom being in danger. Paul, how do you view the supply/demand situation?
Paul Xiradis: There’s no doubt that demand has weakened, but equally we are seeing cut backs in supply as well. If that is the case, that will be reasonably supportive for commodity prices in the shorter to medium term, but having said that we don’t expect commodity prices to increase as dramatically as we have in the past. So when you’re assessing opportunities, certainly in the mining space, you need to have the other factor which is production profile or the production increasing. Now those groups which are showing good production growth and reasonably good commodity prices, that’s where you’ll see the earnings growth and hence the valuation uptick.
Now to your flagship, Australian Active Equity Fund. Which sectors are you overweight relative to the Index?
Paul Xiradis: We have increased our exposure quite dramatically over the past months. When I say months, I mean, over the beginning of this year to the extent that we are quite overweight the banks for the first time in many, many years. And we have moved from being very overweight the resources sector to be more neutral, but very much directed towards iron ore producers, because we do have a very positive view towards the iron ore sector. So they’re two of the major shifts we have made I guess over the past months.
The other area that we have increased is some of the income stocks. We do note that yield is very important; we think that will continue for a short period of time. We’re still overweight those sectors, but we are questioning the duration of that at this juncture. So that may be an opportunity for us to reinvest in some of the more domestic cyclicals as we see the opportunities arise.
And of your biggest positions, which are overweight relative to the Index?
Paul Xiradis: We’re quite a concentrated Fund so most of our active positions are overweight. The ones we are – I mean the sector that we are most overweight as I mentioned, is the banks. And within that ANZ Banking Group (ASX:ANZ) is our preferred bank. News Corp (ASX:NWS) is one that we’ve been overweight for quite some time – maintain that position, so that’s a very strong position that we do have. Insurance we do like, particularly Suncorp Group Limited (ASX:SUN) and that’s a very strong overweight position that we do have.
Real Estate, we’ve been very selective there. Lend Lease Group (ASX:LLC) is one of the stocks we do like. Certainly where I sit, I overlook what’s happening in Barangaroo and that’s looking pretty exciting in our view. So, therefore, there’re a couple of names that we’re quite overweight with at this point.
Finally Paul, where do you see the S&P ASX 200 Index ending this year?
Paul Xiradis: That’s a good question and certainly one that I would like to get right for this year. I think that we do believe the equity market in Australia will move up. We do believe that if things do stabilise and we are seeing signs of that in Europe, and the rest of the world stabilising, we do believe the equities market should move up to around the 4800 level by year end.
Paul Xiradis, thank you for the update.
Paul Xiradis: Not a problem, thank you.