Small, cap-focused listed investment company WAM Capital has doubled its cash holdings since the end of last year as it looks to go bargain hunting after the ASX rout.
But chairman Geoff Wilson said the firm was only “nibbling” at stock at this stage, and claimed the correction would highlight the value of active managers after a general shift towards passive strategies.
“As an investor, this is when we get excited,” Mr Wilson said of the global sell-off and the prospect of finding bargains.
“We are waiting for opportunities. You really need to see the dust settle. Obviously we will be nibbling, and of course it’s a stock-by-stock decision.”
Mr Wilson said it could take a few months to see what the impact of the rout had been on confidence and market participants.
One risk could be money flowing out of passive products, such as exchange-traded funds.
Active versus passive
“In markets like this, you need an active manager,” Mr Wilson told The Australian Financial Review, adding he expected to see money flow back to active strategies.
“The big debate with active versus passive is always a cyclical debate, and it tends to be near tops of markets.”
He argued that active managers tended to bounce back from market crashes better than passive strategies. After the height of the GFC, for example, it took WAM Capital two years to recover what it had lost, while the market took six years to do so.
Mr Wilson said WAM Capital, which will on Monday announce a record interim profit before tax of $119.4 million, up 50 per cent on 2016, had increased its cash position from about 21 per cent at the end of December 2017 to 40 per cent.
Mr Wilson said he was anticipating an end to the long bull markets in bond and equities as central banks started to raise rates.
“Equity markets tend to come under pressure after the first couple of interest rates increases – and that’s what is playing out,” he said.
“As professional investors, we’ve been waiting for the end of a very mature market. So you’ve got to move quickly.”
WAM’s investment portfolio produced a return of 10.4 per cent, versus a 9.3 per cent return from the S&P/ASX All Ordinaries Accumulation Index. In the past 12 months, WAM’s return is in line with the benchmark.
The company’s big winners included fin-tech payments provider Afterpay Touch (whose shares are up six-fold since listing last May) and Nine Entertainment Group.
“Nine are doing a great job in terms of virtually winning the ratings, and Afterpay has been an exceptional performer for us,” Mr Wilson said.
WAM will pay a fully franked dividend of 7.75¢, up 3.3 per cent on the previous corresponding period.