Tips from a cautious investor
by Peter Switzer
One of my guests on SWITZER on the Sky News Business Channel last night was apologetic for being a cautious investor right now suggesting it didn’t make for interesting TV. I corrected him and it did make great TV — the lessons were a ripper as well as a must adhere to for all investors.
John Morgan is the chief investment officer at Lodestar, who has a flexible brief that could see his fund have a high or low exposure to shares. Right now, he says he’s more cautious than many fund managers but he makes the point he still has 50 per cent of his funds in the stock market.
In 2005, he told me he had a 116 per cent exposure to shares and that’s when he was not cautious! (By the way, you might be wondering how he could have a bigger than 100 per cent exposure to shares. This happens when you use gearing or borrowing to ratchet up your commitment to the stock market.)
I actually liked to have someone on the program who was still wary but interested in buying shares.
Economic recovery not fast enough
Morgan thinks the Oz economy is recovering but not fast enough to translate into an earnings or profit growth to justify the share price growth seen and expected. Others use different mathematics and consequently are more bullish.
He also thinks the RBA’s rate rises over the course of this year could hurt earnings and therefore share prices.
The miners and the banks
He says iron ore price movements have to be good for BHP-Billiton, Rio, Fortescue and Mt. Gibson — “that’s a great statistic”. And that’s where his capital is employed at the moment.
He is also supporting all of the Big Four banks for now and these are also seen as an earnings play but he doesn’t think they will be stronger for longer. He points to the credit statistics to suggest that a cautious consumer and low-borrowing business sector could eventually hit bank profits.
Mostly Australian and no property
Morgan said 46 per cent of his 50 per cent of funds invested in shares are in companies in our time zone. He doesn’t want big exposure to Europe or the US at the moment.
He has no exposure to REITs and that’s not likely to change in the near future, given his view on these property plays.
Interestingly, on a historical basis his fund has had a big exposure to small cap companies but not now! He likes “big, liquid names”.
He does not like QBE because of its exposure to the US and the rising dollar. They have a small exposure to Telstra for the dividend but he does not believe the $3.75 targets out there and he has concerns over any future Government decision.
Food for thought
On coal, Lodestar gets exposure there through BHP and Rio but he admitted to a biggish holding of Centennial Coal.
On Harvey Norman, he thinks there might be better retail plays and of course he went for JB Hi-Fi for its superior product mix. For example, Morgan says the latter will get iPads initially but Harvey Norman won’t!
Finally, Morgan likes News Corp and he argues it has the best balance sheet ever in its history. He pointed out its last “fantastic result” actually did not have the Avatar profits in them and further upgrades are expected.
This guy might be cautious but his views on companies he likes could be great food for thought for both nervous Nellies and thrill-seekers alike.
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Published on: Wednesday, April 21, 2010blog comments powered by Disqus