Summary

• Valuations are now one standard deviation above the historical mean in local share markets

• We do need to see earnings strength and earnings upgrades come through for the market to be propelled higher

• We’re starting to see equity markets open up a bit, which could be a sign investor confidence is returning 

Full transcript

Share markets have performed really well over the last quarter. How have our funds have performed? 

The Australian share market has had a strong start to the calendar year. In fact, it's been the strongest start in five-years, and our [Australian shares] funds pleasingly have performed well, so we've delivered relative outperformance for that quarter. And pleasingly over a one, five and 10 years. On the one-year basis, the [Australian Shares] Fund is delivering double digit returns. 

In terms of dissecting that performance, it's mainly coming from stock selection. So, we are at the core, fundamental investors. Technology in particular has been a strong sector for us, and also, we've been underweight materials which has weakened and against the backdrop of weaker commodity prices., 

How are we navigating expensive share markets at the moment? 

That's a good question because we have seen a strong bounce in equity markets. And that has meant that valuations are now one standard deviation above its historical mean. But where we get comfort is that we are seeing volatility.  

The other thing I would note though, is that with the February reporting season, we didn't see the downgrades that we saw in 2023, but we also didn't see the upgrades, so that market strength has come from PE [re-ratings]. And to propel that market further, I think we do need to see earnings strength and earnings upgrades come through the market.    

What are some examples of how we might deploy capital? 

We're starting to see equity capital markets open up a little bit. We've participated in three different equity capital raisers in the past fortnight, so we are still seeing a little bit of thawing of that sentiment because it has been fairly dry over the past two-years. Secondly, at our core we are fundamental investors, we are stock pickers, and with that heightened volatility that I mentioned before, we are finding opportunities to add names.  

One example that I can give you is Webjet. During the quarter we did see that volatility and we took that opportunity to add further to that name into the fund. And then at the end of the quarter [Webjet] delivered a positive trading update, as well as a strategy day which gave credence to the B2B division where we put the bulk of our valuation for that business on.