Senior Portfolio Manager Steve Black provides a portfolio update and insights from the reporting season.
CPD points applicable for Australian Financial Planners
- Philosophy: The team maintains a small and lean structure, consisting of Ed and Steve, with a strong focus on company meetings to identify investment opportunities.
- Successful Long-Term Performance: The investment fund, started nearly 20 years ago, has consistently delivered a return of approximately 12%, outperforming benchmarks by around 7%.
- Risk Management and Stock-Level Focus: Steve emphasises the importance of managing risk, especially in small-cap investments. He highlights that the risk of a portfolio is most significant at the stock level and discusses the team’s meticulous approach to understanding and mitigating risks.
- Market Observations: The recent reporting season was better than expected, with revenue holding up well. However, cost pressures on margins from factors like labour, rent, energy, and technology were observed, impacting operating margins. Funding costs also surprised the market, and healthcare companies faced challenges as they are price takers, relying on government revenue.
- Portfolio Positioning: The portfolio focuses on companies with low debt, strong earnings viability, low earnings volatility, and the ability to preserve profit margins in a rising cost environment. Cash holdings are minimal, emphasizing a long-term investment approach. Ed and Steve continue to prefer small-cap stocks for early-stage investment opportunities and maintain their focus on the specialty platform space.
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