Passive flows are crowding investors into the top of the Australian sharemarket and creating opportunities for active long-short investors willing to look beyond the index, says Perpetual’s ANTHONY ABOUD
- Passive flows distort prices
- Opportunities emerging for patient investors
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Fund flows have become a more important driver of share prices in recent years as superannuation funds move to passive index tracking under pressure from the federal government’s Your Future, Your Super regime, which penalises short-term underperformance.
The moves mean the largest stocks are rising regardless of earnings fundamentals, while companies that have fallen out of favour are being sold.
“Passive generally buys what’s already gone up in a non-fundamental way and sells what’s already gone down in a non-fundamental way,” says Aboud.
“We’re seeing some great opportunities.
“You’ve got to take advantage of a bit of time arbitrage. You can’t be trying to do what the next day or next quarter is going to be, because otherwise that’s what everyone else is trying to do in the market.”
Aboud was speaking at Lonsec’s Symposium 2026.
Passive flows
Aboud says the rise of passive investment has turned stock selection away from fundamentals like earnings, and left the top stocks, including the major banks, moving together despite business performance.
But it is starting to trigger volatility when large investors all move at once.
“To see 10.5 per cent wiped off CBA when the result was in line, it just shows that everyone’s on the same side of the boat,” he says.
“That’s dangerous from a risk perspective.”
Aboud says quality companies like Cochlear being sold indiscriminately by big investors are showing up at prices that look attractive on a multi-year view.
“You’re buying a cracking global company with a 70 per cent market share, with the name of the products named after them, at 17 PE. It’s fantastic,” he says.
Short discipline
The same environment is also creating opportunities on the short side.
Aboud says his team looks for red flags in company behaviour, particularly where management appears to know there is a problem before the market does.
“We’re analysing their behaviour, like a game of poker, to find tells.
“And the biggest one typically is when they make a strange acquisition, or they buy something off private equity.”
Acquisitions can be a sign that a company is trying to hide weakness in its core business, fill an earnings hole, or make itself larger and more complex for management’s benefit, Aboud says.
He cautions that taking short positions requires a different discipline than going long.
“You can only make 100 per cent of your money, but you can lose multiples,” he says.
About Anthony Aboud and Perpetual equities
Anthony is the deputy head of equities and portfolio manager – Perpetual Industrial Share Fund, Perpetual SHARE-PLUS Long-Short Fund and Perpetual Pure Equity Alpha Fund.
Perpetual is a pioneer in Australian quality and value investing, with a heritage dating back to 1886.
We have a track record of contributing value through “active ownership” and deep research.
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