News: Ausbil positioning for low rate environment

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Transcription of Finance News Network Interview with Ausbil’s Australian Active Equity Fund Director of Equities, John Grace

Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from Ausbil’s Australian Active Equity Fund is Director of Equities, John Grace. John welcome back to FNN.

John Grace: Hi Lelde, nice to be back.

Lelde Smits: The RBA [Reserve Bank of Australia] has recently cut rates to a new record low in February. How has the Fund positioned itself for a low rate environment and how is the Fund performing?

John Grace: The Fund’s reasonably well positioned for lower interest rates, but not aggressively so. The Fund will benefit from strong positions in construction and also lots of offshore earners in our portfolio. The market’s up about 12 per cent so far this calendar year, so a strong run, and Ausbil is slightly behind benchmark, but not too much. And, we look forward to a better period as the Aussie dollar starts to come back as a result of low interest rates.

Lelde Smits: The rate cut boosted the S&P/ASX 200 index to near 6,000. Which stocks have performed the best for you this year?

John Grace: We’ve had a number of stocks that have done particularly well so far this year. Macquarie Group Limited (ASX:MQG) which had a strong earnings upgrade during the period, is up about 34 per cent. Global medical distributor ResMed Inc (ASX:RMD) is up about 33 per cent and Aristocrat Leisure Limited (ASX:ALL), a strong performer as well, is up about 21 per cent. In addition we’ve had housing construction as a favoured tilt in the portfolio and Boral Limited (ASX:BLD) has been performing strongly and up over 21 per cent during this period as well.

Lelde Smits: The big four banks remain strong with Commonwealth Bank of Australia (ASX:CBA) trading above $90 per share. How much higher do you think we’re likely to see the big banks trade?

John Grace: It’s a good question; the earnings continue to be robust for the banks. Low interest rates are definitely helping their business and there’s lots of credit growth coming through, in both residential and commercial. As a result, we’re seeing earnings upgrades to these banks and with their strong dividend payout ratio, they’ve been well supported. The Fund is overweight the banking sector.

Lelde Smits: Many mining and energy stocks, however, have just fallen out of the benchmark index. What is your exposure to these sectors now?

John Grace: We do hold both sectors, but we are underweight relative to benchmark. We do see commodity prices remaining under pressure and therefore, earnings for both sectors will be subject to downgrades and earnings hard to come by. The big companies are very focused on cost out, which is also lowering cost curves and therefore, we don’t see any earnings upgrades for quite a while.

Lelde Smits: Finally John, with low rates and a falling Australian dollar which sectors or stocks are looking appealing to you?

John Grace: There’re two key thematics running through the portfolio. Firstly offshore earners and global stocks, which are benefitting from an improving global economy, such as Brambles Limited (ASX:BXB) and Amcor Limited (ASX:AMC) performing well for the portfolio. In addition in the domestics with lower interest rates, we do favour the banking sector and have an overweight position there.

Lelde Smits: John Grace, thank you for the update from Ausbil’s Australian Active Equity Fund.

John Grace: Thank you Lelde.


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