Surprising stocks that yield returns

Funds Management

by Carolyn Herbert

Transcription of Finance News Network Interview with Antares Elite Opportunities Fund Portfolio Manager, Nick Pashias
Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from the Antares Elite Opportunities Fund is Portfolio Manager, Nick Pashias. Nick, welcome back to FNN.
Nick Pashias: Thank you, great to be here.
Lelde Smits: The Fund adopts a contrarian approach to investing. Could you give us an example of an out of favour stock that has turned around?
Nick Pashias: Sure, Qantas Airways Limited (ASX:QAN) is one that we’ve had in the portfolio for a couple of years. We identified a number of themes that we were attracted to and that is a change in the industry’s structure. So we saw that Virgin was behaving itself more on the domestic side of the business. We also identified the cost out story, which to be company articulated as well as a discount to our valuation.
What we didn’t see was the fall in the oil price, which has also helped the stock and that’s why the stock’s tripled off its lows. Right now, we still think that there’s more upside in Qantas. We think that the cost out story and the multiple rerating is what will drive it higher from here. So we still own it and we’re happy to own it.
Lelde Smits: Since we last spoke, interest rates have fallen to record lows. How has this impacted your stock selection and strategy?
Nick Pashias: Even though the short end of the curve, the cash rate has fallen to historical lows, the long end of the curve, the ten-year bond is actually up well above its lows. It actually bottomed in about Aprilat about 2.3/2.4 per cent; it’s currently around three per cent. So long-term interest rates are already rising and we’re positioned for that.
We don’t own any REITs in the Fund, we don’t own any infrastructure stocks, we don’t own any utility stocks. These stocks will be adversely impacted by a rise in long-term interest rates. And that’s really what’s played out over the last few weeks, and we anticipate more of that to come.
Lelde Smits: Higher oil prices have recently given the energy sector a boost. What’s your exposure to energy?
Nick Pashias: One of the energy stocks we’ve liked for a very long time, we’re talking probably about a decade now we’ve owned this stock. And that is Oil Search Limited (ASX:OSH) and we continue to own that in the Fund. We still think that there’s more growth to come out of the PNG assets. The one that we put in the portfolio over the last 12 to 18 months is Santos Limited (ASX:STO).
Santos is a higher risk play; they’re developing some big projects in Queensland. They’re about to come on at the end this year. And we anticipate that they will deliver the cash flows that the market’s been expecting. So we’re eagerly anticipating that development.
Lelde Smits: On the other hand, banking stocks have recently fallen off their highs. What adjustments has the Fund made?
Nick Pashias: Yeah they have, they’ve fallen a long way. The one that we’ve been buying is Westpac Banking Corporation (ASX:WBC). So Westpac have announced a capital raising and that has led to weakness in the share price. And we’re using that weakness to build a position. We’re still underweight, but our underweight is now very modest compared to owning zero Westpac, probably about five months ago.
Lelde Smits: One of the Fund’s biggest positions is BHP Billiton Limited (ASX:BHP). What’s your view on its spinoff, South32 Limited (ASX:S32) and are you still holding on to your allocation?
Nick Pashias: Yeah we are, we’re still holding on to our South32. We’ve met the company last week and we are cautious, but we think there is value starting to emerge. So the stock is just above the two-dollar level, we get a valuation in the mid two-dollar range. But we think there’re a few risks around South Africa and also Brazil that we need to understand, and that was part of the visit. So we’re sharpening our pencil on that one and waiting for an opportunity.
Lelde Smits: Finally Nick. Could you name a stock, which is looking attractive to you and explain why?
Nick Pashias: I’d have to point to Crown Resorts Limited (ASX:CWN). Crown is one that we’ve added to over the last few months, as the share price has fallen. It’s a company that we’re attracted to because of its defensive earnings. They operate casinos in Australia, which we think are doing well.
What’s not doing so well is their assets in Asia, namely Macau where the anti-corruption brought upon by the Chinese Government, as well as some anti-smoking bans have caused the revenue there to fall. But we think that that is now in the price and it’s more looking backward, rather than looking forward. So it’s one that we’ve been adding to.
Lelde Smits: Nick Pashias, thank you for the update from Antares Elite Opportunities Fund.
Nick Pashias: Thanks for the opportunity.