The chief investment officer of Wilson Asset Management says the retail sector could emerge as a solid performer in the coming months, as it shrugs off the impact of the election and unfavourable weather.
WAM chief investment officer Chris Stott said the fund manager was “mildly positive” about the broader outlook for the ASX, and tipped a cut to the official interest rate in August would boost stocks.
“We think that we’ll see further interest rate cuts which could spark consumer confidence. Finally we are getting certainty out of Canberra, so that will also boost confidence,” he told The Australian Financial Review.
“We think that the retail sector looks interesting at the moment given they’ve had a few tough months with the election and the warm winter.”
Mr Stott was speaking after WAM’s flagship listed investment company, WAM Capital, delivered a record profit for 2015-16, with operating profit after tax up 81.5 per cent to $98 million.
The company will pay a final dividend of 7.5¢, taking the full-year dividend to 14.5c, just above last year’s full-year dividend of 14¢.
WAM Capital produced an investment return of 21.6 per cent, well in front of the 2 per cent return from the ASX All Ordinaries Accumulation Index.
Winning stocks for the year included pharmaceuticals group Mayne Pharma, furniture group Nick Scali and the newly listed plumbing supplies business Reliance Worldwide.
“Our stock selection over the year was excellent. We were finding a lot of value in that small to mid cap end of the market,” Mr Stott said.
Two sectors stood out. WAM Capital did well out of the car leasing industry, via stocks such as Ecllipx, Smartgroup and SG Fleet. The sector received a boost in May when Opposition Leader Bill Shorten pledged not to change fringe benefit tax rules that support vehicle leasing.
The company also surfed the surge in Chinese demand for the products of The A2 Milk Company and Blackmores. But WAM sold out of these stocks in early 2016, feeling that valuations had become too frothy.
Mr Stott said the outlook was improving for companies focused on the Chinese consumer.
“We think that in most cases the regulatory concerns have reduced for most of these companies,” he said.
“But we still believe that people need to be very selective with some of those stocks that have very elevated valuations.”
WAM Capital’s strong investment return was delivered despite the cash levels of the LIC hovering around 35 per cent during the year.
Around 60 per cent of the company’s investors are self-managed superannuation funds.
Asked to name a stock he’s enthusiastic about for the company year, Mr Stott picked debt collection firm Credit Corp Group, which should benefit from flat economic conditions.
“We think its prospects remain strong given the earnings certainty over the next year or two.”