Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 181

Best ideas from John Pearce, Leah Zell, Kerr Neilson, Geoff Wilson

These are presentations from the Sohn Hearts & Minds Investment Leaders Conference in Sydney on 11 November 2016. Each high-profile portfolio manager is given 10 minutes to explain their investing strategies and include one major investible insight.

John Pearce (pictured on home page)

John is Chief Investment Officer of UniSuper. He has over 25 years’ experience in the financial services industry both in Australia and Asia, including 7 years at Colonial First State, and 3 years as Head of Global Asset Management for Ping An, China's second largest insurance company. He is also a non-executive director on the Treasury Corporation of Victoria Board.

Best idea: Transurban

In the last three months, the previous success of the so-called ‘yield trade’ has been a dumb investment as long-term interest rates have risen. But where to from here? Investors should look through the current volatility and accept that low interest rates will continue. The world economy is still recovering from the GFC, US debt to GDP shows a massive buildup, and US deleveraging has barely started. The yield curve delivers a message of ongoing ultra low interest rates.

Powerful deflation forces such as technology and the demographics of aging are also pushing down prices, meaning inflation will also remain low.

We are at the start of the yield trade not the end, and I can’t go past Transurban. It pays a yield of over 5% with long-term concessions on monopoly assets. Management remuneration is set based on results. Even if there is inflation, Transurban can increase tolls, and it has a strong management team.

Since Unisuper is the largest shareholder in Transurban, I could be accused of talking my book, but I won’t be the only one here.

Leah Zell

Leah is Founder and Portfolio Manager of Lizard Investors, and launched the Pengana Global Small Companies Fund trust in 2015 with Lizard as the investment manager. She was a Co-Founding Partner and Portfolio Manager at Wanger Asset Management, a global small-mid cap equity specialist, for 13 years. 

Best idea: BIM stores (a Turkish company)

(Leah’s investment idea was the most successful from last year’s London conference).

Much of the Turkish economy is controlled by powerful families with dominant shareholdings, but this company has one business line and one class of stock. 71% of shares are free-floating. BIM stores slogan is “retail at wholesale prices”.

BIM earns a 46% return on capital, has had 26% revenue growth per annum over last 10 years and the balance sheet has net cash. It now has over 5,000 stores in Turkey.

BIM delivers a basket of groceries at 30% cheaper than the competition. It sells a limited range of basic goods that sell fast, uses private labels and no frills premises and does no advertising. It has one brand of sugar, three blends of coffee, five types of jam.

Few retailers in the world manage their businesses with such low costs. It follows Aldi’s play book but it is not a stepchild. In Turkey, the market is still unorganised and fragmented, but continued modernisation will allow growth in home territory. It’s now in Egypt, Morocco and Chile.

BIM is not cheap, it trades at PE of about 20, but based on reasonable assumptions, it has potential to double by 2020. BIM checks the investments boxes.

Kerr Neilson

Kerr has over 40 years' experience in financial markets both in broking and funds management. Kerr founded Platinum Asset Management in 1994, and was Chief Investment Officer until 2013. Kerr remains Chief Executive Officer and Portfolio Manager for the Platinum global mandates.

Best idea: 58.com (NYSE code WUBA)

58.com operates the largest online marketplace in China serving merchants and consumers. It allows members to connect, share information and conduct business, giving a massive network effect. It is growing rapidly in ‘verticals’ such as property and jobs and as it grows, its costs barely move.

The largest 25 cities in China have more people than the whole of the US, and the country is fast-changing. 58.com wants to aggregate as many viewers as possible and they already have 400 million visitors a month and over 1 million merchants. There are 4 transactions per visitor per year, but they expect to reach 12 as they learn more about their consumers. Merchants pay fees to participate.

The real money spinner comes from merchants trading up to higher profiles on the site, pay for real time bidding or priority placing.

58.com has 16,000 people pounding pavement recruiting clients and over 1,600 in the telecentre signing up people.

There are a number of negatives affecting the company at the moment. Transaction values are small, the company is only breaking even and sales in sectors like property are cyclical. They need to manage false listings and the stock has fallen significantly recently. A big positive is that the Founder has stayed with the company since inception.

We expect more merchants, more verticals, and strong network effects as mobile phone usage grows.

Geoff Wilson

Geoff has over 36 years’ direct experience in investment markets. He founded Wilson Asset Management in 1997, and is currently Chairman of four WAM group companies and the Australian Stockbrokers Foundation. 

Best idea: Armidale Investment Corporation

The pain gets closer every week and every day, as equity valuations are at unsustainable levels. Risk is being mispriced and we are close to an adjustment or significant equity market fall.

We believe that eventually, a company’s share price will reflect its fundamental value, but timing is crucial. Many smart people have mistimed the market and have gone broke in the short term although they were right over the long term. We do not want to be fully invested in the market all the time, and our current cash levels are 41%.

We look at four elements in any investment decision:

  • Management
  • Earnings
  • Valuation
  • Catalyst

We all want to own $1 for 50 cents, but we especially want to become a part owner of a business. On the final point above, we want to see a catalyst that will lead to a rerating that moves the market price.

Armidale Investment Corporation is listed on the ASX. It’s an integrated financial services company, a pure play on asset finance broking, which is much like mortgage broking was 10 years ago. Armidale will be the biggest consolidator. Management owns 20% of the business, giving good alignment. EPS growth over the next two years will be 20% plus. The rerating will come when the market realises this is an investment company becoming an operating business, and we expect recent acquisitions will give earnings upside surprise. But the full potential will take 5 to 10 years to fully realise.

Our priority is to manage by not losing money, and we don’t care about relative performance. An investor should always be happy to hold cash.

 

This is general information and the investments may not be suitable in many portfolios as the personal circumstances of investors are unknown. Cuffelinks accepts no responsibility for the performance of the investments and this is the author's version of the talks.

 


 

Leave a Comment:

     
banner

Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Welcome to Firstlinks Edition 455 with weekend update

The resolve of many investors to focus on the long term with their share portfolios is increasingly tested as the list of negatives lengthens. There is a lack of visionary policies during an election campaign and stimulatory spending is contradicting the aims of tighter monetary policy.

  • 28 April 2022

Latest Updates

In praise of our unique democracy and its sausage

For all the shortcomings of our political campaigns, our election process is the best. We are blessed with honest administrators and procedures that we all trust to hand over power peacefully, with a big snag. 

Investment strategies

Is the investing landscape really different this time?

Many market analysts argue that the pandemic has changed everything but we must judge whether the circumstances are as drastic as billed. A quick review of four major events helps decide if this time is different.

Economy

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Retirement

When will I retire? Economic impact of an ageing population

About 39% of the labour force is aged over 45. Intergenerational reports highlight the challenges of an ageing population and the impacts on consumption patterns, dependencies, public finances and economic growth.

The real story behind the crypto crash

The recent sell-off in the crypto market and its trigger - the collapse of the Terra UST coin - has affected many institutions either holding or trading crypto assets, including crypto fund managers.

Investment strategies

Cash is the nightingale, the bird in the hand

The bird in the hand is worth two in the bush, and it's an apt metaphor for investment choices. In 2021, as investors hunted in the bush for decent returns, demand overwhelmed supply. Cash is the bird in the hand.

Strategy

Book review of 'Putin’s People' and his motivation for war

Author Catherine Belton argues Putin’s sole ambition is to hold onto power. Her book seeks to understand why Putin invaded Ukraine after he became isolated and out of touch with reality during the pandemic.

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.