Transcript of Finance News Network interview with John Grace from Fund Manger, Ausbil Dexia
Clive Tompkins: Hello Clive Tompkins reporting for the Finance News Network. Joining us for a financial year end wrap of the market and a portfolio update is John Grace from Fund Manager Ausbil Dexia. John welcome back. The S&P/ASX 200 ended the year at 4,301 points up 11%. Considering all that’s taken place domestically and internationally, what do you make of the result?
John Grace: Result overall was probably a little bit disappointing from our perspective. The market was up quite strongly through the second half of last year, i.e. the first half of this fiscal year, but quite a disappointing performance through to this calendar year 2010, where the market fell 10% to result in the market only up as you say, just over 11%.
Clive Tompkins: And John what was the performance of your largest fund, The Active Equity Fund with $3B and under management, did it beat its benchmark?
John Grace: The Ausbil Active Equity Fund outperformed the benchmark by over 1% over the course of the last fiscal year. We were quite cyclically biased in our positioning and had strong performance through the first half of last year and gave a little bit back through the second half of the year.
Clive Tompkins: What were some of your better picks for last year?
John Grace: We’ve had some good performances out of key holdings like Amcor where we participated in a capital raising for the acquisition of Alcan - that stock was up over 43% for the year. Another key stock of ours is ANZ Bank where again they had a capital raising through the year. We participated in that quite strongly and that stock was up over 37% for the fiscal year.Another stock that did well for us was AXA which received a couple of takeover bids and that stock performed very strongly over the course of the year as well.
Clive Tompkins: And on the flipside which stocks are you behind on and do you still hold them?
John Grace: Yeah, our performance was handicapped a little bit by performances of such stocks like Toll Holdings which we still do hold which suffered a couple of earnings downgrades through the course of the year, being a cyclical stock that’s not unexpected. But probably the extent of it was a bit of a surprise to the market and that stock underperformed.The other stock that underperformed also is Worley Parsons which also suffered an earnings downgrade as projects got delayed through the course of the calendar year. And we still hold both stocks, yes.
Clive Tompkins: And what about your geared fund, how did that perform?
John Grace: Yes the gearing in that fund is over 50% and therefore, it doubled the return of the market and outperformed its benchmark quite handsomely.
Clive Tompkins: John turning to the Mining Resource Rent Tax, the consensus seems to be positive. Could this be the catalyst the market needs to get back on track?
John Grace: We view the MRRT better than the RSPT but it’s only in relative terms. It’s still an increased tax and therefore, the market has been pricing in quite a negative outcome on the RSPT and therefore, should give a little bit of a catalyst under MRRT. But this still has to go through the Senate and also and an election.The big mining companies BHP and Rio Tinto were certainly going to be harmfully impacted by the Resource Super Profits Tax proposal. Under the Gilliard Government with the Mineral Resource Rent Tax, they will certainly be less impacted going forward and we do expect that these stocks can rally from 10 to 15% from here, given they’re priced in a very negative outcome under the RSPT former proposal.
Clive Tompkins: You’ve been in the news regarding your stakes in the Seven Group and David Jones, have you added to these positions in the last quarter?
John Grace: We’ve added slightly to our positions in these two stocks over the last quarter. They remain core positions for us and we have been very actively involved in corporate governance for both companies over the course of the last six months in particular.
Clive Tompkins: And as DJ’s largest shareholder, have you had a chance to meet the new CEO?
John Grace: Yes we have met with the new CEO, Paul Zahra. Our analyst has met with Paul over the course of the last few years and Paul has been a very key part of the management team at David Jones. And we have every confidence in the continuation of the excellent program at David Jones in terms of growth prospects for the company.
Clive Tompkins: And what impact do you think the decision to replace its CEO will have on DJ’s brand longer term?
John Grace: We believe the Board has acted very decisively in this matter and we do believe therefore as a result, this will strengthen the brand of DJ’s particularly with its key customer groups.
Clive Tompkins: John, Ausbil Dexia recently launched a long short Equity Fund and one that invests in small caps, why now?
John Grace: We’re expecting continued volatility in the equities market and this provides good opportunities for stock pickers. In the long short fund we can benefit from being on both sides of the ledger whilst in the small cap space, there’s lots of cheap stocks out there which we can then buy and look for good returns going forward.
Clive Tompkins: Last question. What’s your expectation for the S&P/ASX 200 over the next twelve months?
John Grace: We expect the Australian Equity Market to do better than last year’s 11% return. Given attractive valuations the market’s on eleven times earnings plus prospective growth of over 25% in those earnings. We do believe the market can trade up towards 5,000 points over the next twelve months.
Clive Tompkins: John thanks for your views.
John Grace: Thank you.
