But fund managers need to find good investments in both good and volatile markets.
We asked three fund managers for their views on the New Zealand and Australian markets over the next two years.
They say there are industries strong enough to push the global volatility and there are companies lurking in NZX that could be the rough diamond.
Victoria Harris – Devon Funds
Victoria Harris, portfolio manager at Devon Funds, says the previous decade has been a relatively easy time to be a fund manager because markets have generally been bullish. But all that has changed.
“Now really a stock picker’s market is super high inflation end the easy money environment. We will see a trend of funding towards cheaper companies with growth prospects and value names,” Harris says.
Harris prefers the Australian market over NZX for the next 12 months due to Australia’s strong commodities and energy sectors and less aggressive rate hikes by the Reserve Bank of Australia.
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But not all industries are safe in Australian markets. Industries that rely on consumer spending say they could suffer when household wallets tighten.
“Retailers with housing problems may have a tough time in the next few years. Places like Bunnings, Harvey Norman, and building materials businesses could suffer in the coming year. Companies with high debt will also be affected by their profits. ”
Instead, Harris looks to companies with pricing power and the ability to pass rising costs, such as supermarkets, energy and infrastructure, to consumers as better investment opportunities for the near future.
Hamesh Sharma – Pathfinder
Pathfinder portfolio manager Hamesh Sharma said the Australian market is looking to invest in the finance and banking sector.
“While bank margins rise as interest rates rise… we think the Reserve Bank of Australia will follow New Zealand on this issue, so we want to make sure we have exposure to this part of the market,” Sharma says.
Sharma said he is keeping a close eye on BNZ’s parent company, National Australian Bank, and insurance provider QBE.
“We’ve seen insurance providers make more money over the last few years, and we think this is a trend that will continue. With the exception of some events like the bushfires in Australia, we think insurance providers like QBE have capital ready to really grow over the next year.”
Like Harris, Sharma says the retail industry will have tough years as consumer spending is put under pressure.
However, its ability to pass on extra costs to consumers has exempted Woolworths, which provides good protection in a portfolio.
Sharma says he’s looking at businesses focused on renewable energy in the local market like Meridian and Contact, as well as more specialized companies like Infratil and solar panel manufacturers.
“The cost of solar projects has dropped 10% in the last few years. Solar is an area to consider as we see renewable energy accelerating.”
David Fyfe, Mint Asset Management
David Fyfe, portfolio manager at Mint Asset Management, says he’s looking at industries that can handle volatility, such as defensive growth stocks, as we’re seeing massive easing in cheap money.
“These are high-income companies with a strong retail base. “Households that do both the job of being a defensive conglomerate while continuing to grow,” Fyfe said.
Companies in this space include Contact Energy, which both serves an existing customer base and is actively preparing to grow in renewable energy.
But a trend towards defensive growth did not mean there was no room for thematic investment, especially if the theme included green recovery. climate changesaid.
“Despite the market volatility, the pressure for renewable energy is not going away. That’s why we still consider Infratil and Trustpower to be good investments locally. But it is a long-term investment, as renewables have a long road ahead of them.”
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Victoria Harris, Devon Funds:
EBOS Health: New Zealand’s largest provider of medical supplies, equipment, solutions and supplies to the healthcare market.
“We think this is a great company that has had a good few years and is ready for further growth. While there is some volatility in the industry, we think it will continue to do well in the years ahead.”
Hamesh Sharma, Pathfinder:
Instant payment: Saas company that manages donations for charities operating in the United States.
“The valuation of tech stocks has been crushed as investors adjust future earnings for inflation. We still think Pushpay is a solid investment in the medium term. It’s not that much of a bargain, but it’s cheap compared to other tech companies with its size and revenue.”
David Fyfe, Mint Asset Management:
serco: Saas company that provides technologies to help businesses manage their travel and spending.
“This local business travel management software has signed a big deal with Booking.com, which we see as a huge boost to what the company is doing. It carries a certain risk as it is linked to international travel, but we definitely think it has potential.”