Ausbil talks 130/30 Focus Fund post reporting season

Funds Management

by Carolyn Herbert

Transcription of Finance News Network Interview with Ausbil Deputy Head of Equities, Gian Pandit.

Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from Ausbil to discuss its 130/30 focus fund, is Deputy Head of Equities, Gian Pandit. Gian, welcome back.

Gian Pandit: Thank you very much.

Carolyn Herbert: The aim of the Fund is to outperform the ASX 200 Accumulation Index. So what does this translate to in terms of a number?

Gian Pandit: We aim to be top quartile over the long-term, which is generally about 300 basis points above the ASX 200. But we need to understand that the Ausbil 130/30 focus fund has a very unconstrained style. The market’s too narrow; we have 70 per cent of the market in 30 names. So what we do at Ausbil is look at all opportunities to outperform value and growth stocks, and the best opportunities are the one’s that we select for this fund.

Carolyn Herbert: What level of volatility does the fund exhibit?

Gian Pandit: That’s a really interesting question. The volatility of the market is around 11 per cent at the moment, the fund volatility is close to 12 per cent, so it’s a low volatility fund. But if you look back in the last year, we’ve been cycling about 600 basis points of alpha, which is outperformance over the Index. So we aim to have high returns with low risk.

Carolyn Herbert: Can you tell us what is a long/short fund?

Gian Pandit: Long/short fund looks at all the opportunities in the marketplace. We get opportunities by buying stocks and we want stocks to go up. But there’s also an opportunity of short selling stocks and outperforming, when the stocks go down. So a true long/short fund looks at all opportunities. Now at Ausbil, we have six analysts covering over 200 companies and we look at the full breadth of the Ausbil ideas coming through. And we put the best long ideas and the best short ideas in combination, not in isolation, to drive two outcomes. We’re here to drive alpha generation or outperformance, but we’re here also to look at capital preservation. And what I mean by that is that the shorts act as a buffer in our portfolio, when the markets do fall down.

Carolyn Herbert: What’s your approach to stock selection and risk management?

Gian Pandit: When we look at the approach it’s really grounded in our philosophy and process. Put simply, our philosophy’s earnings and earnings revisions drive share prices. And we try and get those earnings right and early, ahead of the curve. Our process is twofold; it’s macro top down and bottom up. First we start with a macro economic forum and an idea that translates into our sector weights. Secondly as I mentioned, we have six analysts covering over 200 companies that do the due diligence, modelling bottom up work in giving us conviction in stocks, both long and short. And it’s from that very pool of stocks that generates our best ideas.

Carolyn Herbert: Now to the fund, how is it positioned and why?

Gian Pandit: The fund is cautiously positioned right here, right now. Since the Trump election, the market’s rallied 15 per cent. The ASX 200’s on 16 times, the all industrials fund all industrials market, is on close to 20 times PE. We are positioned 10 per cent cash at the moment, so fairly defensively positioned. But we are overweight companies with very strong earnings profiles, and companies that are in an earnings upgrade cycle. So we are overweight US earners and offshore earners, companies such as TWE (Treasury Wine Estates ASX:TWE), Aristocrat Leisure (ASX:ALL), BSL (BlueScope Steel Limited ASX:BSL). And also companies that will outperform with interest rates going up, such as CPU (Computershare Limited ASX:CPU) and QBE Insurance Group Limited (ASX:QBE).

We’re underweight the bond proxy sector. As you know, it’s not only the companies that you’re overweight that adds to our performance, it’s companies that you leave out of the portfolio, that adds to our performance. So those bond proxies, which are subject to interest rate moves that will see their earnings deteriorate, we are completely underweight. So companies such as telcos, REITS, infrastructure. Now we are short and I don’t like talking about shorts that often, but in the sector view we are short the retail sector, at this stage. And presently we’re doing the work in regards to going short the housing cycle.

Carolyn Herbert: Finally Gian, how has the fund performed over the quarter and further back?

Gian Pandit: It’s been a very difficult quarter hasn’t it? The fund’s performed very well over the quarter and over the last rolling one year, the fund’s hit over 600 basis points of alpha. And what’s really good is that over the five-year period, the fund’s hitting its benchmark target of over 300 basis points of alpha.

Carolyn Herbert: Gian Pandit, thanks for the update.

Gian Pandit: Thank you very much.