By James Thomson
Like most investors, WAM Capital portfolio manager Oscar Oberg wakes each morning with a little trepidation about the news coming out of Wall Street.
And with no sign that the spectacular stock movements are over – Facebook’s staggering 26 per cent fall delivered another gut-punch to tech investors on Thursday night – there’s plenty of reason to worry about the spillover into Australian markets.
The pain for WAM Capital started before January’s sell-off. The flagship fund in the Wilson Asset Management stable of listed invested companies started moving away from COVID winners and positioning for an economic reopening in the middle of last year, with a portfolio that includes travel stocks such as Webjet and Ardent Leisure, retailers such as Accent Group and Lovisa and construction sector players like Brickworks and Maas Group.
But as the omicron wave started breaking in November and December, and it became clear Australia’s reopening would be put on pause again, the portfolio faced selling pressure.
In the six months ended December 31, the WAM Capital Investment Portfolio gained 4.8 per cent, 0.2 of a percentage point above the ASX All Ordinaries Accumulation Index, but 0.7 below the ASX Small Ordinaries Accumulation Index.
WAM Capital remains ahead of its benchmarks on a three-year, five-year and 10-year view, but in the last 12 months it has slipped 0.6 per cent behind the ASX All Ordinaries.
Oberg says it’s a credible result, particularly as WAM Capital does not invest in resources stocks, which are a major part of both benchmarks and have pushed higher in line with commodity prices.
But like most fund managers, it’s been a tough January, even though WAM Capital is not exposed to the ASX tech stocks that have suffered the brunt of the local selling.
“I think the biggest surprise we’ve had … is that it hasn’t been just the technology sector that’s been sold off. It’s basically everything in small-cap industrials. There’s been nowhere to hide, whether it’s value or growth.”
But the breadth of the sell-off also gives Oberg a bit of hope. While he stresses he’s braced to a year of volatility and difficulty on markets, he sees pockets of value – and the February reporting season should show some off.
Oberg argues many of the reopening stocks WAM Capital remains exposed to should deliver earnings that aren’t as bad as the market fears in the next few weeks. And given these stocks have already been aggressively sold off in the last three or four months, whatever profit pain these companies have experienced from omicron should largely already be in the price.
“Therefore, any sort of positive news that we see through reporting season we think will be well-received,” Oberg says.
WAM Capital is also betting that many of its holdings now have better balance sheets than when they entered the COVID-19 period, giving them the ability to chase growth.
And with the omicron wave starting to look like it has crested, the reopening period that was supposed to happen late last year should now get underway as consumers deploy their huge reserves of savings. While this wave of spending will add to inflationary pressures, it should also lift earnings.
Viva Energy, which operates the Shell chain of petrol stations in Australia, is a stock Oberg says can do well as Australians end their self-imposed lockdowns and hit the road again. It will also get a tailwind from its refining business, which is enjoying high oil prices.
Retailers Accent and Lovisa should do well as young people get out and start spending again, while Oberg also sees a healthy outlook for travel stocks.
Again, Oberg is clearly not bullish on the market as a whole. He says tech stocks likely have further to fall as interest rates rise and warns that Australian investors will follow those on Wall Street by hammering stocks that deliver earnings misses or disappointing guidance.
But within the small industrials sector that WAM Capital focuses on, Oberg sees value.
“I just feel like they’ve been oversold. And I think a number of them are going to have good results.”
Licensed by Copyright Agency. You must not copy this work without permission.