Why Sohn's top stock pickers want investors to play it safe

Why Sohn’s top stock pickers want investors to play it safe

Professional gambler and founder of the Museum of Old and New Art, David Walsh, brutally warned the 600-strong Hobart crowd that risk levels could rise and ultimately stock market returns could fall.

“It is not clear to me whether the variance, the level of risk, is also increasing. If that’s the case, and that variance is growing faster than the market is growing, then one day it’s all going to suck.”

Catherine Allfrey supported Transurban’s inflation hedge. Alastair bed

At the annual conference, which raises funds for medical research, speakers are invited to present a stock they plan to invest in over the next 12 months. The best ideas make up the majority of the portfolio for the $560 million ASX-listed Hearts & Minds Mutual Fund.

The fund, which donates a percentage of its assets to charity, has fallen 41 percent in a year to trade at an 18 percent discount to its net asset value after its string of tech-heavy bets turned sour.

“As investors we always have to consider risk and commodities are cyclical but that also means miners are recovering,” said Tim Elliott of Regal Partners in his presentation on ASX-listed Canadian iron ore miner Champion. “A real risk is buying some profitless growth stocks for 20 times projected sales on heroic assumptions that often disappoint.”

Champion, Mr Elliott said, allowed investors to buy “hard assets at less than half their replacement cost” in a market that has been difficult and expensive for new competitors.

Australian fund manager Samuel Terry’s Fred Woollard took a deep dive into AMP’s value because “the sum of the parts is worth more than its $4 billion market cap.”

Tribeca’s Jun Bei Liu has decked out in luxury brands to do the Bull Case for China Tourism Group Duty Free. Alastair bed

Mr. Woollard said conservative value investors have been wrong about AMP for years, but “AMP just keeps getting cheaper,” and with a new CEO at the helm, now is the time to buy.

“Don’t leave that on the street”

Among the other stock picks touted by fund managers were David Cooper’s Eurofins Scientific and Claremont’s Bob Desmond – in trainers and a Nike sweater – picked sportswear giant Nike. Tribeca’s Jun Bei Liu has decked out in luxury brands to make the cop case for retailer China Tourism Group Duty Free.

Tim Carleton of Australian hedge fund Auscap urged investors to buy Carsales.com, which he says is trading like a tech stock when in fact it has more in common with a media company.

“In investing, you don’t get an extra return for increasing the difficulty. My advice: don’t leave this one on the street,” he said.

Wavestone’s Catherine Allfrey tipped toll-monopoly operator Transburban: “Inflation doesn’t matter for this stock because the prices it charges are linked to the CPI,” she said.

While Transurban has a high level of debt, inflation will serve to increase nominal earnings while depreciating the debt in real terms.

The shift in favored stocks reflects a turbulent year in which higher inflation forced central banks to raise interest rates sharply while the war in Ukraine weighed on global commodity supply.

Several presenters revealed that they are looking for value created by the sharp sell-off in technology stocks.

FACT Capital’s Joyce Meng tipped Irish video game developer Keywords Studios, and Munro Partners’ Nick Griffin said the 30 percent decline in Dutch semiconductor game ASML allowed investors to buy into a trillion-dollar opportunity.

existential threat

son hearts & Minds first took place in 2016 and has raised $40 million for medical research.

But so-called fundamental investors — those who adhere to founding principles of investing such as attractive free cash flow and sustainable competitive advantage — face an existential threat.

New York-based hedge fund manager Ricky Sandler of Eminence Capital said that 15 years ago fundamental investors made up 75 percent of the stock market, but that has shrunk to 45 percent.

Meanwhile, the rise of environmental, social and corporate governance investments, increased retail and hyperactive hedge fund trading strategies had further marginalized the role of stock selection in price setting. This means, he said, investors need a “change in mindset.”

“Basic investors are mostly irrelevant to the stock market in the short term,” he said. “Over time, we believe markets balance and fundamental investors, if they stand by their beliefs, will eventually win.”

Stocks are not more volatile and their movements “no longer provide fundamental investors with clues,” he said.

Tasmanian Premier Jeremy Rockliff opened the conference and AFL chief Gillon McLachlan made the case for a Tasmanian stadium. The event ended with Australian rock band Hunters & collector.

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