Share investing in uncertain times
Many commentators are expecting the sharemarket to be volatile over the next couple of months, so Charlie Lanchester and I have positioned the Perpetual Industrial Share Fund (Fund) to find yield and take advantage of any market upturn.
If Europe does unwind, I expect global growth to slow, which would hit China and have implications for mining companies, big and small. In this environment, the economics of several mining projects would become marginal. As projects are delayed or shelved, mining services companies would feel the effects most. Their earnings would probably fall and investors would not continue to pay the high prices they have in the past. This could result in the share prices of some mining services companies falling sharply. Given this, there are only a few small holdings of mining services stocks in the Fund. (Remember, the Fund does not invest in mining stocks).
Telstra is likely to be protected by its 8 per cent dividend yield and it is one of the top holdings in the Fund. My only concern is that if the market starts to ‘skip away’ and really rally, then Telstra is likely to be sold by investors who would prefer to be in more risky stocks.
As our investment process is focussed on finding ‘value’ stocks, I have looked closely at deep cyclicals which have had their share prices ‘hammered’. Take Boral, for example; the chief executive is being replaced and the company is trading at a discount to its net-tangible-assets, which could be an attractive combination. As a result the Fund is overweight Boral.
It probably isn’t quite the right time for consumer discretionary stocks, but I have focussed on Harvey Norman. It is one of the few businesses that can reshape its floor away from electronics which are experiencing price deflation and concentrate on what makes money. I take the view that what is happening in retail is a shakeout and Harvey Norman has the kind of balance sheet that means it will still be around when it's over.
The PDS for the Perpetual Industrial Share Fund issued by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426, should be considered before deciding whether to acquire or hold units in the Fund.
This information has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. The views expressed in this article are the opinions of the author at the time of writing and do not constitute a recommendation to act. Any information referenced in the article is believed to be accurate at the time of compilation and is provided by Perpetual in good faith. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor's capital.
