1 00:00:03,900 --> 00:00:06,570 Sean: Welcome to the Fear & Greed daily business interview. The local 2 00:00:06,570 --> 00:00:09,209 Sean: equity market hasn't had a great time of it recently. 3 00:00:09,450 --> 00:00:12,599 Sean: The market a week ago hit a technical correction down 4 00:00:12,599 --> 00:00:16,139 Sean: 10% from its peak, with interest rates, geopolitical uncertainty, the 5 00:00:16,139 --> 00:00:19,230 Sean: global outlook including oil prices and other factors weighing on 6 00:00:19,230 --> 00:00:22,110 Sean: the (inaudible) . So where to from here? How should 7 00:00:22,110 --> 00:00:25,980 Sean: investors think about the market, particularly large caps? I welcome 8 00:00:25,980 --> 00:00:29,880 Sean: this morning Matthew Haupt, lead portfolio manager of WAM Leaders. 9 00:00:29,880 --> 00:00:31,319 Sean: Matthew, welcome back to Fear & Greed. 10 00:00:31,770 --> 00:00:33,089 Matthew: Thank you for having me. Great be here. 11 00:00:33,719 --> 00:00:36,540 Sean: So WAM Leaders invest in large caps. What is it that 12 00:00:36,540 --> 00:00:37,350 Sean: you're looking for? 13 00:00:38,100 --> 00:00:42,330 Matthew: Stocks that go up in value, I mean ideally. But 14 00:00:42,330 --> 00:00:45,870 Matthew: yeah, what are we looking for? Generally we look across 15 00:00:45,870 --> 00:00:49,528 Matthew: the market and we're just trying to identify companies that 16 00:00:49,530 --> 00:00:53,939 Matthew: are obviously valued correctly or cheaply, sorry. And then having 17 00:00:54,690 --> 00:00:57,150 Matthew: a range of factors which will drive a share price 18 00:00:57,150 --> 00:01:01,980 Matthew: up, whether they be macro tailwinds or company- specific catalysts. 19 00:01:01,980 --> 00:01:05,309 Matthew: But just trying to identify a reason why that stock 20 00:01:05,309 --> 00:01:07,649 Matthew: will go up in value and why the market will 21 00:01:07,650 --> 00:01:11,039 Matthew: look at it differently and apply a different valuation at 22 00:01:11,039 --> 00:01:13,020 Matthew: a point in time. So I mean, that's the key 23 00:01:13,020 --> 00:01:16,259 Matthew: thing with stocks is trying to identify the reason why 24 00:01:17,069 --> 00:01:20,039 Matthew: the market is valuing as it is and then finding 25 00:01:20,039 --> 00:01:23,190 Matthew: the reason why it will change that way it looks 26 00:01:23,190 --> 00:01:25,380 Matthew: at a company. So I mean, that's the key thing 27 00:01:25,380 --> 00:01:27,959 Matthew: with investing is trying to find that at all times. 28 00:01:28,260 --> 00:01:30,658 Sean: Okay. So is there a sort of a process here 29 00:01:30,660 --> 00:01:33,179 Sean: whereby you look at the top 50 or whatever WAM Leaders 30 00:01:33,180 --> 00:01:38,910 Sean: is in and obviously, there's going to be a quantitative 31 00:01:39,209 --> 00:01:42,240 Sean: aspect to it, but then the qualitative aspect, how do 32 00:01:42,240 --> 00:01:43,080 Sean: you do that part of it? 33 00:01:43,920 --> 00:01:47,250 Matthew: Yeah, I mean qualitative is the thing you can't really 34 00:01:47,250 --> 00:01:51,390 Matthew: see as such. So for us it's really around the 35 00:01:51,390 --> 00:01:54,510 Matthew: quality of management. I mean, that is crucial as we 36 00:01:54,510 --> 00:01:58,410 Matthew: all know in our own lives and businesses management is 37 00:01:58,410 --> 00:02:01,559 Matthew: crucial as they set the tone and set the environment for 38 00:02:02,099 --> 00:02:06,119 Matthew: the workforce to prosper. So ideally on the qualitative front 39 00:02:06,119 --> 00:02:09,540 Matthew: is meeting with management, spending as much time as we 40 00:02:09,540 --> 00:02:15,959 Matthew: can and channel- checking previous employees just to see have 41 00:02:15,960 --> 00:02:19,650 Matthew: they got a track record in success, because as you 42 00:02:19,650 --> 00:02:24,719 Matthew: know, the top 50 is pretty competitive, the growth rates 43 00:02:24,719 --> 00:02:29,040 Matthew: are not outstanding, so management is crucial. So that's what 44 00:02:29,040 --> 00:02:31,769 Matthew: we're trying to identify. And also the depth of management 45 00:02:31,770 --> 00:02:35,549 Matthew: too. So quite often the CEO, CFO gets all the 46 00:02:35,550 --> 00:02:39,299 Matthew: headlines, but we're really looking at the bench strength and 47 00:02:39,750 --> 00:02:43,379 Matthew: possible successes below as well. So it's really just FaceTime 48 00:02:43,379 --> 00:02:46,500 Matthew: with management and channel- checking that actually have the credentials 49 00:02:46,500 --> 00:02:49,530 Matthew: to outperform. I mean, that's a real key for us. 50 00:02:50,099 --> 00:02:52,529 Sean: And just before we kind of leave this kind of 51 00:02:52,530 --> 00:02:56,820 Sean: line of chatting, what about dividends? How important are they 52 00:02:56,820 --> 00:02:57,900 Sean: in your process? 53 00:02:58,500 --> 00:03:04,888 Matthew: Dividends aren't really solely a focus for us. I guess 54 00:03:05,610 --> 00:03:10,440 Matthew: the second derivative is high dividend payers generally have good 55 00:03:10,440 --> 00:03:15,029 Matthew: quality businesses. So dividends isn't a focus, but a high 56 00:03:15,030 --> 00:03:20,520 Matthew: dividend paying companies generally a high quality company. So I 57 00:03:20,520 --> 00:03:23,760 Matthew: guess peeling it back a bit, it's more that second 58 00:03:23,760 --> 00:03:28,740 Matthew: derivative part. Is the company high quality? Does it have 59 00:03:28,740 --> 00:03:33,000 Matthew: good cashflow? All those key things rather than dividends specifically. 60 00:03:33,000 --> 00:03:36,720 Matthew: So it's more an outcome of the positive business again. 61 00:03:36,720 --> 00:03:40,020 Sean: Okay. So let's look at where we are now. Is 62 00:03:40,020 --> 00:03:42,180 Sean: it a good time to be in large caps to 63 00:03:42,180 --> 00:03:45,240 Sean: be thinking about investing in large caps as opposed to mid- 64 00:03:45,240 --> 00:03:46,860 Sean: caps or small caps for example? 65 00:03:47,490 --> 00:03:51,810 Matthew: Yeah, it's an interesting question. Can you time the market 66 00:03:52,080 --> 00:03:57,450 Matthew: between sectors? Is there a big enough valuation discount between 67 00:03:57,450 --> 00:04:01,320 Matthew: sectors and why is there a discount? Obviously small to mid- 68 00:04:01,320 --> 00:04:05,429 Matthew: caps historically look pretty cheap, but you really got to 69 00:04:05,429 --> 00:04:08,670 Matthew: peel back the reasons why that's the case and the 70 00:04:08,670 --> 00:04:13,800 Matthew: index doesn't really capture what's underneath the hood. So to 71 00:04:13,800 --> 00:04:17,820 Matthew: look at index levels solely is missing the point, I 72 00:04:17,820 --> 00:04:20,849 Matthew: think. You really got to look at what is moving 73 00:04:20,849 --> 00:04:25,019 Matthew: those indices. And for us that's the more important thing 74 00:04:25,020 --> 00:04:30,089 Matthew: rather than size of company. I think the main factors 75 00:04:30,180 --> 00:04:34,890 Matthew: around what environment are they going into, is it beneficial? 76 00:04:35,520 --> 00:04:38,820 Matthew: Do they have company- specific reasons why they should go 77 00:04:38,820 --> 00:04:41,370 Matthew: up or down? Rather than just looking at a size 78 00:04:41,370 --> 00:04:46,439 Matthew: metric and thinking invest in small caps, because it looks 79 00:04:46,440 --> 00:04:48,539 Matthew: like it's a cheap place to invest it sort of 80 00:04:49,380 --> 00:04:52,020 Matthew: rather than being simplistic. I think really to do your 81 00:04:52,020 --> 00:04:53,969 Matthew: homework, you've really got to go underneath the hood of 82 00:04:54,360 --> 00:04:58,380 Matthew: what's happening in the economy in the business cycle and 83 00:04:58,380 --> 00:05:02,099 Matthew: the macroeconomic cycle instead of making general call around the 84 00:05:02,099 --> 00:05:04,589 Matthew: size of a company being a driver of where to invest. 85 00:05:04,949 --> 00:05:06,960 Sean: Stay with me Matthew, we'll be back in a minute. 86 00:05:13,260 --> 00:05:16,919 Sean: My guest today is Matthew Haupt, lead portfolio manager of 87 00:05:16,920 --> 00:05:20,669 Sean: WAM Leaders. So if we look at some stocks now 88 00:05:20,670 --> 00:05:23,339 Sean: let's take the banks on the basis of what you've 89 00:05:23,339 --> 00:05:25,110 Sean: just said. Is there one of the big four, for 90 00:05:25,110 --> 00:05:28,229 Sean: example, that you think will outperform the others at the moment? 91 00:05:28,980 --> 00:05:32,040 Matthew: Generally the way we look at banks is which ones 92 00:05:32,040 --> 00:05:37,529 Matthew: are crowded going into results, because they're so well- analyzed and 93 00:05:37,529 --> 00:05:41,279 Matthew: we get monthly data around market shares and the like. 94 00:05:41,279 --> 00:05:44,460 Matthew: So you really got to look at positioning and at 95 00:05:44,460 --> 00:05:49,650 Matthew: the moment, National Australia Bank and ANZ I would class 96 00:05:49,650 --> 00:05:54,150 Matthew: as crowded trades in the banks and Westpac and CBA 97 00:05:54,750 --> 00:05:57,990 Matthew: are not crowded. So on that basis you'd say the 98 00:05:57,990 --> 00:06:01,618 Matthew: ones which look the best and we've always got a 99 00:06:01,620 --> 00:06:06,180 Matthew: contrarian bias would be Westpac and CBA. We'd think they 100 00:06:06,180 --> 00:06:10,080 Matthew: would trade better. Westpac I think kick it off. They're 101 00:06:10,080 --> 00:06:13,139 Matthew: the first report. So again, what we would do here 102 00:06:13,139 --> 00:06:15,569 Matthew: is we'll see how the first bank report and then 103 00:06:15,570 --> 00:06:18,269 Matthew: adjust our weightings based off on how that first bank 104 00:06:18,270 --> 00:06:21,870 Matthew: reports too, because that'll give you an indication of how 105 00:06:21,870 --> 00:06:25,109 Matthew: the market is thinking about the results. But overall, the 106 00:06:25,110 --> 00:06:30,509 Matthew: environment is incredibly competitive. The mortgage wars are being ongoing 107 00:06:30,509 --> 00:06:34,049 Matthew: and the deposit wars. So overall, I think the sectors 108 00:06:34,080 --> 00:06:38,580 Matthew: will perform broadly in line. I can't see a reason 109 00:06:38,580 --> 00:06:42,480 Matthew: for the sector to outperform wildly from here. So I 110 00:06:42,480 --> 00:06:44,909 Matthew: think it'll be a real litmus test that first result 111 00:06:44,910 --> 00:06:48,719 Matthew: to see more so on positioning of how people are 112 00:06:48,719 --> 00:06:51,750 Matthew: positioning banks. I think at the moment, the last time 113 00:06:51,750 --> 00:06:55,350 Matthew: I checked it's around a slight underweight in the Australian 114 00:06:55,350 --> 00:06:58,140 Matthew: bank, so there were a large underweight, but that has 115 00:06:58,140 --> 00:07:01,260 Matthew: closed recently. So it'd be very interesting to see how that 116 00:07:01,260 --> 00:07:04,409 Matthew: goes. But generally you trade around which one is crowded 117 00:07:04,920 --> 00:07:07,828 Matthew: and the under- owned banks. So that's how we look 118 00:07:07,830 --> 00:07:08,039 Matthew: at it. 119 00:07:08,639 --> 00:07:10,379 Sean: Okay. So what about some of the stocks you do 120 00:07:10,379 --> 00:07:12,090 Sean: like or don't like? I mean we can go through 121 00:07:12,090 --> 00:07:14,580 Sean: the sectors, but rather than do that, let's jump to 122 00:07:14,580 --> 00:07:15,630 Sean: some of the ones you like. 123 00:07:16,620 --> 00:07:20,490 Matthew: Yeah, so really interesting market environment too, because the diversions 124 00:07:20,490 --> 00:07:24,179 Matthew: between stocks is huge at the moment. You've got stocks 125 00:07:24,179 --> 00:07:27,749 Matthew: near their 52- week highs, maybe after the correction we've 126 00:07:27,750 --> 00:07:30,570 Matthew: had just recently, they've come off a bit. And then 127 00:07:30,570 --> 00:07:33,119 Matthew: on the other end of the spectrum you've got stocks 128 00:07:33,570 --> 00:07:39,300 Matthew: near GSC lows. Around 2016 levels, a lot of stocks 129 00:07:39,300 --> 00:07:41,849 Matthew: are hovering around that level too. So there's a real 130 00:07:41,849 --> 00:07:46,439 Matthew: divergence. So again, we've got that contrarian picking in our 131 00:07:46,440 --> 00:07:49,200 Matthew: nature. So we like a lot of the names that 132 00:07:49,200 --> 00:07:53,910 Matthew: are trading heavily discounted to historical valuations. So a few 133 00:07:53,910 --> 00:07:57,359 Matthew: of them, I mean, the most recent one really liked 134 00:07:57,360 --> 00:08:01,349 Matthew: the business Orora. They been the spin out of Amcor. 135 00:08:01,349 --> 00:08:04,469 Matthew: They had a recent acquisition, which the market is very 136 00:08:04,469 --> 00:08:08,940 Matthew: skeptical on, the Saverglass acquisition. The market is skeptical, because 137 00:08:08,940 --> 00:08:11,550 Matthew: of the size and where it came from and the 138 00:08:11,550 --> 00:08:15,450 Matthew: location. And we think those fears are well- overplayed. So 139 00:08:15,960 --> 00:08:18,809 Matthew: Orora looks like a really good investment for us at 140 00:08:18,870 --> 00:08:22,679 Matthew: this point in time. Again, the acquisition, they'll get it in 141 00:08:23,129 --> 00:08:26,250 Matthew: the new year. It's a higher margin business than in 142 00:08:26,250 --> 00:08:31,050 Matthew: their existing business. And the proforma numbers put out by 143 00:08:31,050 --> 00:08:34,050 Matthew: Orora, we think they're very safe. So we think the 144 00:08:34,050 --> 00:08:36,179 Matthew: market has got that wrong at this point in time. 145 00:08:36,660 --> 00:08:39,150 Matthew: And then if we look at another one, we think 146 00:08:39,150 --> 00:08:42,149 Matthew: Treasury Wine looks pretty good too. And again, it's an 147 00:08:42,149 --> 00:08:46,140 Matthew: acquisition. They're just in the process of raising money for 148 00:08:46,140 --> 00:08:51,179 Matthew: now. We think that company is well- placed. Predominantly premium 149 00:08:51,179 --> 00:08:54,208 Matthew: luxury end of wine has been doing okay in a 150 00:08:54,210 --> 00:08:56,880 Matthew: pretty challenging environment as we go through a de- stocking 151 00:08:56,880 --> 00:09:01,348 Matthew: phase and a lower demand period after the surge through post- 152 00:09:01,350 --> 00:09:05,610 Matthew: COVID. So we think that looks good. It's got China 153 00:09:05,610 --> 00:09:08,070 Matthew: to come back, we think in the second half of 154 00:09:08,130 --> 00:09:11,460 Matthew: the financial year. And then the acquisition, they're in the 155 00:09:11,460 --> 00:09:14,100 Matthew: process of doing now, which is a U. S. business 156 00:09:14,670 --> 00:09:18,300 Matthew: again, we think that brand has potential to be rolled 157 00:09:18,300 --> 00:09:23,010 Matthew: out internationally. So you've got a few key drivers here 158 00:09:23,010 --> 00:09:26,970 Matthew: of potential earnings growth even in the form of the 159 00:09:26,970 --> 00:09:29,639 Matthew: underlying business with the China coming back. And then if 160 00:09:29,639 --> 00:09:32,429 Matthew: you lay on top of that, the acquisition, it actually 161 00:09:32,429 --> 00:09:36,029 Matthew: looks like it's going to have quite strong growth over 162 00:09:36,029 --> 00:09:39,000 Matthew: the next three to five years. So that's a company we're 163 00:09:39,000 --> 00:09:41,250 Matthew: quite excited about at the moment as well. 164 00:09:41,700 --> 00:09:43,858 Sean: Okay. What about the market generally over the next year 165 00:09:43,860 --> 00:09:45,540 Sean: or two? How do you think it'll perform? 166 00:09:45,840 --> 00:09:48,899 Matthew: I think the time horizon the market has at the 167 00:09:48,900 --> 00:09:51,210 Matthew: moment is about one month at a time, maybe one 168 00:09:51,210 --> 00:09:55,200 Matthew: week. But we think the direction we're going in, the 169 00:09:55,230 --> 00:09:58,590 Matthew: ultimate place we're going to is an interest rate cutting 170 00:09:58,590 --> 00:10:02,519 Matthew: environment. So we think that happens around the middle of 171 00:10:02,520 --> 00:10:05,670 Matthew: next year. So in that environment you have to be 172 00:10:05,670 --> 00:10:09,660 Matthew: positive equities. It's that journey getting there that we're a 173 00:10:09,660 --> 00:10:12,870 Matthew: little bit uncertain on. So the journey it started, the 174 00:10:12,870 --> 00:10:16,080 Matthew: hire for longer was kicked off in September. And then 175 00:10:17,040 --> 00:10:20,639 Matthew: I think the financial condition tightening scared a lot of 176 00:10:20,639 --> 00:10:24,389 Matthew: the, we talk about America, the Fed members. So they 177 00:10:24,389 --> 00:10:27,540 Matthew: walked that back and even the other day the Fed 178 00:10:27,960 --> 00:10:30,750 Matthew: were trying to walk back the message they created in 179 00:10:30,750 --> 00:10:34,890 Matthew: September, the hire for long, which really contracted or tighten 180 00:10:34,890 --> 00:10:38,550 Matthew: financial conditions. So it is a real fine line. They 181 00:10:38,550 --> 00:10:42,690 Matthew: have to keep financial conditions tight, squash that last bit 182 00:10:42,690 --> 00:10:47,490 Matthew: of inflation and they cannot let the forward market or 183 00:10:47,490 --> 00:10:50,728 Matthew: the forward curve start pricing in aggressive cuts, because that 184 00:10:50,729 --> 00:10:54,540 Matthew: will undo a lot of the work they're trying to do. So it's really a game 185 00:10:54,540 --> 00:10:56,309 Matthew: they have to play now where they actually don't really 186 00:10:56,309 --> 00:10:59,400 Matthew: believe what they're saying. They can see the slowdown happen, 187 00:10:59,400 --> 00:11:01,679 Matthew: but they cannot take their foot off and they have 188 00:11:01,679 --> 00:11:05,609 Matthew: to remain tight until it all comes crashing down basically. 189 00:11:05,609 --> 00:11:08,070 Matthew: So that's the environment we think we're in over the 190 00:11:08,070 --> 00:11:10,588 Matthew: next period. So it's going to be pretty volatile as 191 00:11:10,590 --> 00:11:14,458 Matthew: they have to keep things tight despite a slowing economy. 192 00:11:15,090 --> 00:11:17,130 Sean: Matthew, thank you for talking to Fear & Greed. 193 00:11:17,639 --> 00:11:18,150 Matthew: Thank you. 194 00:11:18,630 --> 00:11:22,020 Sean: That was Matthew Haupt, lead portfolio manager of WAM Leaders. 195 00:11:22,020 --> 00:11:24,360 Sean: Remember, this is not an investment podcast though you should 196 00:11:24,360 --> 00:11:27,870 Sean: always seek advice that suits your circumstances before making investment 197 00:11:27,870 --> 00:11:30,420 Sean: decisions. Join us every morning for the full episode of 198 00:11:30,420 --> 00:11:33,420 Sean: Fear & Greed, is Australia's best business podcast. I'm Sean Aylmer, 199 00:11:33,750 --> 00:11:34,409 Sean: enjoy your day.