The chief investment officer of WAM Capital is confident the small end of the market will outperform blue chips in the year ahead, as hopes of US President Donald Trump turbo-charging economic growth fade and investors resume the hunt for bargains.
WAM Capital, which will release its results on Monday, has lifted its full-year dividend 3.4 per cent to 15 cents, fully franked.
But the listed investment company, which focuses on small to medium stocks, posted an investment portfolio return of 11.7 per cent, below the All Ordinaries accumulation index return of 13.1 per cent.
Chief investment officer Chris Stott says the underperformance of small cap stocks weighed on performance; he estimates some $5 billion was ripped out of the small cap sector during the year.
WAM Capital remains well in front of its benchmark on a three-, five- and 10-year basis.
Debt services company Credit Corp was the biggest winner for WAM Capital during the year (it exited when the share price had doubled), while fintech firm Afterpay Touch Group and furniture retailer Nick Scali were also strong performers.
Shoe business RCG, Ardent Leisure and Hunter Hall Global Value, which endured a tumultuous year after the departure of its founder Peter Hall, weighed on performance.
Upbeat about earnings season
Looking ahead, Mr Stott is upbeat about earnings season, expecting “one of the strongest we’ve seen for many years”.
“Domestically economic conditions are slowly improving and companies that have got exposure to the US will perform well, excluding the recent move in the currency.”
Mr Stott said there continued to be solid levels of cash sitting on the sidelines of the Australian market, and expects that solid profit results and outlook statements could see some of that money shift into equities.
“The reporting season could be a bit of a catalyst for that to be deployed.”
One sector Mr Stott is watching closely over the next 12 months is one of the Australian market’s most disliked – media.
“We think that valuations are very attractive in that sector,” he said.
He nominates Fairfax Media (publisher of The Australian Financial Review) as a stock to watch and has also added Nine Entertainment Co to WAM’s portfolio.
“We think Nine’s well positioned from a program perspective and it will win the ratings for the first time in a decade.”
He also thinks expected changes to media ownership laws could spark corporate activity in the sector.
WAM Capital’s top holdings at June 30 included Hunter Hall Global Value, Flight Centre, Afterpay and laboratory services group ALS.