Transcription of Finance News Network Interview with Ausbil Emerging Leaders Fund Co-head of Equities, John Grace
Carolyn Herbert: Hello I’m Carolyn Herbert for the Finance News Network and joining me from fund manager, Ausbil is Co-head of Equities, John Grace. John, welcome back.
John Grace: Thanks Carolyn, good to be back.
Carolyn Herbert: Can you start by giving us a quick introduction to the Fund and what part of the market it invests in?
John Grace: The Ausbil Emerging Leaders Fund is a reasonably large fund in the domestic market. It’s focused on the mid cap 50 stocks and the small caps, generally between the 50stock and the 200 stock in the Australian index.
Carolyn Herbert: How long has the Fund been running?
John Grace: The Fund’s been running since 2002, so quite a long time and a good track record.
Carolyn Herbert: What’s the Fund’s investment style?
John Grace: The Fund’s investment style is what we call style neutral. So we’ll look at the market from all angles and the Fund can be tilted to value or to growth, depending on where we find opportunities.
Carolyn Herbert: What’s the potential for mid caps to become much larger in the space of a couple of years?
John Grace: Mid caps are the sweet spot of the Australian market. So there’s plenty of M&A activity and plenty of opportunity for companies to grow through acquisition. And I do believe M&A in this space will be a key feature.
Carolyn Herbert: What are some other examples over the past year?
John Grace: Another really good example is Treasury Wine Estates Limited (ASX:TWE), which bought the Diageo (NYSE:DEO) wine assets in the US. Again, a strategic acquisition for Treasury Wine and that business has performed extremely well. And the underlying share price has responded to that acquisition.
Carolyn Herbert: Which of those companies do you think has the potential to become considerably bigger and why?
John Grace: I think it’s TPG Telecom Limited (ASX:TPM), they’ve made a very good acquisition with iiNet Limited (ASX:IIN). And now that they’ve got their own infrastructure, they can really compete effectively against the likes of Telstra Corporation Limited (ASX:TLS) and Optus Systems Pty Ltd. They’re the lowest priced competitor in the market and as they move into the mobile market, I really think they’re going to take some significant market share. And over time, that business will grow significantly.
Carolyn Herbert: What are some of the Fund’s biggest positions then?
John Grace: Some of the biggest positions we’re holding are firstly Aristocrat Leisure Limited (ASX:ALL), which is the Australian slot manufacturer. It’s making some great acquisitions in the US and also generating some really good product, which is generating good interest from the investors i.e. the casinos. And that business is humming along quite nicely, and that stock’s performing handsomely for the portfolio.
Another stock doing particularly well is Boral Limited (ASX:BLD), which has got ties into both the housing market here in Australia and in the US, and also the infrastructure spend. So that stock’s performing particularly well and they’re a core position in the portfolio.
Carolyn Herbert: What have you added to your portfolio recently?
John Grace: Some recent acquisitions have been in the gold space. We’ve added Evolution Mining Limited (ASX:CAH), a strong producer around 800,000 ounces per annum, with a strong cash margin. And that stock’s performing well. We’ve also added some resource positions, as that whole resource sector starts to improve and commodity prices start to base.
Carolyn Herbert: Taking a look at performance now. How has the Fund performed over the medium to long term?
John Grace: The Fund’s beaten the benchmark over the medium and longer term, with some significant outperformance. Again, the earnings growth in this space is quite strong. We’re finding good opportunities in the mid and small cap space.
Carolyn Herbert: Finally John, what’s your outlook for the market going forward?
John Grace: The Australian market’s had a tough time over the recent period. But going forward, we see some good earnings growth coming into the economy and into the stocks, represented in the index. And again, it’s the mid and small caps, which are benefitting the most and have higher earnings growth, than the overall market. So we’re seeing some good opportunities and we’re very active in the market.
Carolyn Herbert: John Grace, thanks for the update.
John Grace: Thanks Carolyn.