Have you made any positional changes responding to the rising geopolitical tensions in Europe?
Geopolitical events tend to result in sharp sell-offs, but also rebound quite quickly if economic growth is largely unaffected. This suggests being too reactionary and making sudden portfolio moves may, in hindsight, not necessarily be the right thing to do.
That said, we were already very overweight in energy and have had a reasonable commodity exposure given our view around inflation, investment required to decarbonise and increasing trade protectionism, and have some gold insurance.
The bigger issue is whether the tensions spill over resulting in lower global growth and other unintended consequences. The introduction of any meaningful sanctions by the West increases this risk.
The other consideration is how will Russia respond? While it has little incentive to curtail major commodities like oil and gas, the disruption of industrial metals like nickel or palladium could cause problems for international supply chains, and add to inflation risks.
How are you managing your exposure to the oil and gas sector amid the transition to a lower carbon world?
In some respects, we see the energy sector like the telecommunications sector a few years ago when it was plagued with concerns by investors around competition and regulation before COVID-19 found a renewed appreciation for the strategic value of the underlying assets.
We see Woodside Petroleum as the best placed domestic beneficiary of any tightness in regional energy. Woodside’s exposure to spot cargoes of LNG is around 20 per cent, but its valuation starting point is cheaper owing to the complex merger of equals with BHP expected to be finalised mid-year. The deal – if approved – will position Woodside with twice the levels of production and a balance sheet with low levels of gearing and sufficient flexibility to fund various growth options, including Scarborough in Western Australia.
How have you managed your exposure to BHP since the unification?
BHP remains our preferred large diversified commodities play. It brings back memories of the 2000s when News Corp similarly dominated the index, and I can remember similar concerns when CSL became the largest stock in index a few years. We have sympathy with the view Australian investors bore a cost in the process, but it doesn’t really change our view.
There is no question BHP is a quality business and its recent result highlighted at current commodity prices it is having its time in the sun. It’s important to remember though, it’s a cyclical industry, and things can change, as we have seen with News Corp and CSL over the years.
Which stocks do you hold with exposure to the reopening theme?
We continue to favour selective reopening trades and higher cyclical exposure which not only stand to benefit as demand recovers from the pandemic but also as rates tighten.
Aristocrat Leisure and Corporate Travel which have experienced COVID-19 headwinds, but been able to emerge stronger through taking market share and actively participating in industry consolidation.
Cleanaway and Qube Logistics are two other quality companies with market leadership, a strong competitive advantage, assets that hard to replicate and should benefit as borders open and volumes in their respective sectors recovery.
Any good TV series or podcasts you’re streaming?
I’m more of a documentary person and enjoy reading and listening to talking books. I’ve just finished Bad Blood by John Carreyrou, the story about the rise and fall of celebrity CEO Elizabeth Holmes and Theranos the health biotech that soared to a market cap of $US9 billion and partnered with the likes of Walgreens before being divulged as a fraud. It’s an entertaining read with some serious ethical questions and insights into the workings of Silicon Valley finance.
Do you have a local pub you enjoy going to?
Our local on the weekends is the Royal Mail Hotel in Birregurra. This has recently undergone a change of management and refurbishment, and has all the hospitality of a country pub, where you’re greeted by the owners and wonderful menu. I can highly recommend The Royal Marinara, and a bottle of local pinot.
What are your interests outside of work?
Having married a farmer, we have a block in the Otways. There’s always something to be done, but it’s great therapy and an outlet from the intense routine of funds management. I have also recently fallen victim to the joy and frustration of real tennis.
