Ausbil talks large cap stocks

Funds Management

by Carolyn Herbert

Transcription of Finance News Network Interview with Ausbil Active Equity Fund CEO and Head of Equities, Paul Xiradis
Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from fund manager, Ausbil is CEO and Head of Equities, Paul Xiradis.
Paul, welcome back.
Paul Xiradis: Great to be back.
Carolyn Herbert: The local market’s been more volatile than most people can remember in a long time. What do you put this down to?
Paul Xiradis: You’re right; the market over the past three or four months has been very volatile. We saw the market being sold off quite aggressively in January and also in February, but recovered quite strongly in March. I think there were a lot of factors that were driving that. There was a fair bit of uncertainty surrounding the direction of interest rates, just after Christmas and into the New Year. Concern about the oil price, which collapsed during that period and also recovered quite strongly. And also concern generally about the health of the global economy, particularly out of China.
Carolyn Herbert: How does Ausbil manage this volatility?
Paul Xiradis: We’re very active in our approach. We are a top down manager and also a bottom up; I mean that’s the way we look at the world. We look at all the drivers, which we think are important and likely to influence the market going forward, over the coming 12-month period. Then we distil that down to what sectors are likely to be influenced, from that outcome. And then from a bottom up perspective identify the best stocks, which we think are likely to perform well, in the coming period ahead.
Carolyn Herbert: With reporting season over for the half, which sectors surprised?
Paul Xiradis: There were a few sectors, which did surprise in the sense of their performance, rather than the outcome. It was quite perverse I think this time round where the sectors and stocks, which delivered good outcomes, didn’t perform all that strongly. And those stocks and sectors, which performed poorly leading into it and delivered a bad outcome, actually performed very strongly. I think the reason for that was that the market was positioned for a bad outcome for those stocks and sectors, which were likely to underperform. Then that was reversed on the announcement of those results.
Carolyn Herbert: What about exposure to stocks with offshore earnings, how is that trade working out?
Paul Xiradis: That has been certainly a winning outcome for a number of years, particularly with the Australian dollar adjusting to its lower level. That was posing a bit of question I guess the last quarter, because we did see the Australian dollar recover somewhat. And also a number of investors were pretty heavily exposed. But having said that, I think that some of the foreign earning streams that are out there are still very strong, and I think are likely to deliver pretty good results. So you need to be quite selective and certainly that’s how we are positioned, here at Ausbil.
Carolyn Herbert: What’s your view on yield stock favourites like the big banks and Telstra Corporation Limited (ASX:TLS)?
Paul Xiradis: The banks have been under pressure for a good 12 months now. I mean there’ve been a lot of issues surrounding the banks, I think a little bit overdone, but certainly they have been concerning the banks. We’ve seen a lot of international investors being quite negative towards our banking sector, and they link property markets, downturns in China to the banking sector. But the outcome is if we have a residential slowdown, the banks do perform relatively well regardless, because they are pretty well protected. And they haven’t been lending in areas where they are concerned about.
Telstra has performed mixed I guess over the period, I mean it’s still a very strong yield stock. We are seeing competitors being far more aggressive in their space. But I do believe that Telstra has a very strong and good proposition. And also have pretty good earnings growth and also yield, so I think that’ll be quite supported. What I am concerned about is there’s been a lot of yield stocks, which are running out of yield. And what I mean by that is that the price has been pushed up in a lot of these sectors, where the yield has been contracted quite dramatically. So a traditional yield stock may not necessarily be a yield stock, because the price is actually quite high at this point.
Carolyn Herbert: Now to performance, how did the Fund perform over the medium to long term?
Paul Xiradis: We’ve got a very good history of delivering outperformance on a consistent basis. And certainly, the last quarter last year, we’ve been able to deliver outperformance. It has been quite a testing period I must say, but we have been able to add value.
Carolyn Herbert: Finally Paul, what’s your outlook for the market going forward?
Paul Xiradis: The outlook for the Australian market over the next 12 months, I think has a number of challenges ahead of it. I do believe that the market still represents reasonably good value, certainly at these levels. But there are some issues that the market needs to be focused on. One of the factors is global growth; I mean how that’s going to perform over the next 12 months. I do believe that growth will still remain relatively solid, so I think that’ll be a positive backup for equity markets.
And generally speaking, there’re still some rock solid good companies out there, which will perform well regardless of the economic conditions, which we’ve identified, which we think are going to deliver strong outperformance. So we’re reasonably optimistic, but obviously understand that there is some caution to be had.
Carolyn Herbert: Paul Xiradis, thanks for the update.
Paul Xiradis: My pleasure, thank you.

Carolyn Herbert

Finance News Network
Carolyn joined FNN in August 2015 as the Head of News and also presented the Market at Midday and the Market Wrap. With more than five years of broadcast journalism experience, Carolyn has worked as a finance anchor on the Sky News Business channel and as an anchor and reporter for ABC News. She is also a qualified corporate lawyer specialising in IPOs, takeovers and mergers and acquisitions.