By Alex Gluyas


What were your key takeaways from the US earnings season?

A key takeaway this earnings season has been the market’s sorting mechanism gearing up. 2022 was year one of the current bear market. In the first phase of any sell-down, stocks tend to be repriced lower relatively indiscriminately, with smaller stocks the most aggressively repriced. As we move through this process, better companies will stand out and quality management teams will respond by under-promising and over-delivering, while continuing to invest in high return opportunities.

Though not names we hold, two clear examples of this are Meta and Palantir. Meta announced a $5 billion cost out and Palantir reported their first profitable quarter in their history – both stocks moved up over 20 per cent as a result. Other CEOs are not blind to that market response and will move towards cost discipline, if they haven’t already been forced to by activist investors.

Which Australian stocks do you own?

We hold a couple of Australian stocks in the WAM Global Fund, including Resmed and IDP Education.

Our view is that Australian investors are generally under-invested in global markets, and as such giving them exposure to America, Europe and Asia provides the benefit of global diversification and growth.

Which region do you view as having the most opportunities?

Much has been made of the discounted stocks on offer in Europe, however, at least from our work, this tends to disappear when you look industry by industry – Europe is simply more weighted to lower-valued sectors and so looks optically cheap.

Three fitting examples are: Experian, a global credit bureau, trading 1/3 richer than US-based competitor TransUnion; UK accounting software provider Sage trading only 10 per cent cheaper than Intuit despite, in our view, having a far more constrained opportunity set; and Finland’s elevator company Kone, which trades richer than US-listed market share leader Otis.

My view is that the US remains the most opportunity-rich environment for investors today. Whilst a generalisation, during our conversations with management teams we tend to find drive, governance, innovation, willingness to fail and learn and opportunities to invest are most abundant in the US. These things matter, as both capital allocation and managerial skill are core to our process.

Which stock in the fund is being most undervalued by the market?

Volkswagen is the most notable, trading today at under €75 billion ($116 billon) market capitalisation.

Volkswagen retains a 75 per cent economic stake in Porsche AG, which, given its strong brand and desirability, trades with deep daily liquidity in the public market at over €100 billion. This prices the rest of Volkswagen group at zero.

While this investment will require patience, we’re being paid to wait, with management having paid a €19.06 special dividend in January.

Has China’s re-opening been fully priced into Chinese stocks?

In the short term, the pendulum has swung towards an easing regulatory environment and a re-opening driven demand tailwind. A cashed up Chinese consumer will benefit not just Chinese companies, but also multinationals exposed to the Chinese market. Stocks have rebounded but remain well off peak levels.

While this may speak to value remaining in Chinese stocks, there are important longer-term questions that investors should think about, and that largely keep us on the side lines. The ground on which great, long-term equity returns are built tends to be free markets and property rights. A powerful centralised government without term limits and an increasingly involved state do open up the potential for the benefits of economic growth flowing not to shareholders.

Has the new year rally in US tech stocks been overdone?

Our view is generally yes, this rally is overdone, and shows signs of excess. For me, this is best exemplified by Carvana’s equity up over 100 per cent year-to-date, despite Carvana’s debt trading at levels pricing in a high probability of distress, or by the brief resurgence of the meme stock absurdity in January and February.

With the FTSE 100 near its record high, do you like any UK stocks?

We hold CVS Group, providers of veterinary services across the UK. This is an attractive space driven by secular trends around increasing ownership and humanisation of pets.

Additionally, we tend to like industries that are seeing improved industry structure over time, which is occurring in UK veterinary services as CVS Group and other consolidators roll up the industry. At only £1.4 billion market cap, CVS Group is a great example of a well-positioned, less well-known company that we like to hold in the fund.

Favourite local bar/restaurant? What’s your go-to order?

My local cafe, the Grumpy Baker in Coogee, makes croissants that rival the French version. Overlooking Coogee beach, a great spot for a quick croissant and flat white after a swim.

Any good TV shows or podcasts you’ve been enjoying?

I’m a heavy consumer of business and investment podcasts and books. AFR readers will be up on the most popular ones, so I thought I’d mention something less well known – the Business Brew by Bill Brewster.

I found Bill through a podcast with Aussie Tobias Carlisle and have been listening since. Bill cuts through a lot of the fake talk in markets and provides insightful interviews with a wide range of guests.