by Sarah Turner
Veteran fund manager and franking advocate Geoff Wilson says one of the longest bull markets on record appears to be close to its natural end, having pushed up valuations to “ridiculous levels”. The Wilson Asset Management chairman was speaking at the Stockbrokers and Financial Advisers Conference in Sydney on Wednesday, fresh from an 18-month battle with the Labor party over its failed campaign to scrap cash refunds entitled to taxpayers with excess franking credits.
The Coalition’s surprise election victory means Australians are still eligible to claim those refunds, setting off a more than $30 billion rally in stocks on Monday as investors rushed back into bank shares.
Mr Wilson ran a long, sustained campaign against Labor’s proposals on behalf of shareholders of WAM’s listed investment companies.
But on Wednesday, he said that the fight against the “grossly unfair” and “illogical” policy was over, and appeared ready to turn his attention to the wider market.
He was “ultra-bearish” on equities at the end of last year, with the imminent end of the US Federal Reserve’s stimulatory quantitative easing program in sight. “Quantitative tightening – that worried me the most,” he said.
Now that quantitative tightening is “off the table”, with interest rates probably set to fall both in Australia and the US over the next twelve months, that will should be supportive for the market. And while earnings growth is a risk, investors will probably “kick the can down the road” for another six to twelve months, he said.”But we are getting close to the end,” the fund manager warned. Arriving at the end of a long bull run, valuations are at levels that “particularly in Australia are ridiculous at the moment”, and sentiment was such that “you can float anything”, Mr Wilson said.
Addressing the relentless debate around active versus passive portfolio management during the question and answer session, the WAM chairman defended the active camp.
“What does really worry me is ETFs [exchange traded funds],” he said. “With a fund manager you have someone controlling the outflows and when they see outflows they will probably end up building up a cash buffer. If we all run for the door now, it’s going to be pretty painful getting out.
“I was around in 1987 and we all remember portfolio insurance,” he said. “To me that’s what drove the market in October 1987 – everyone was running for the door at the same time.”
The risk to the market was: “we all think that there is liquidity until we want to sell.”
Despite his vocal defence of stock pickers, he acknowledged the pressure on the funds management industry. “How can we continue to add value? I think that is the enormous challenge.”
WAM shareholders appeared to welcome his battle against Labor’s policy platform.
Mr Wilson went on the attack almost as soon as the proposal was announced by then shadow treasurer, Chris Bowen, early last year.
By late September, Mr Wilson had coined the phrase “retirement tax” in his weekly missive to WAM’s 80,000 shareholders. This slogan would be picked up by the Coalition as franking became a divisive election issue.
Mr Wilson said the fact that Labor was forced to revise its policy almost immediately to exclude pensioners suggested it had not been properly formulated. He admitted to crying when reading stories from shareholders who sought his advocacy on the issue.