Why The Dynamic Nature Of The ASX Provides Investment Opportunities

By Randal Jenneke | More Articles by Randal Jenneke



The Australian sharemarket is one of the most dynamic markets in the world, and has delivered robust returns for investors over many years. While many investors are familiar with the traditional mining and banking stocks which have dominated in the past, today the largest company is actually a healthcare business.

As Australian companies have grown, so has their footprint on the global stage. This means many of the country’s best businesses are effectively global leaders in their own right and have significant operations in many countries around the world.

If you’re thinking about a portfolio of high-quality Australian companies, with the ability and track-record to sustainably and significantly grow, it makes sense to invest in a strategy which is driven by expert local knowledge, coupled with unparalleled global reach and support.

The opportunity for investors in the Australian market is to invest in one of the best asset classes in the world. If you look at the returns generated by the Australian equity market over time, it’s been consistently a really top performing market, and that’s a function of the fact that we’ve got underlying growth in Australia that’s been robust over many, many years. We’ve also had a dynamism inside the market itself. If you think about it today, what’s the biggest company in the Australian market? It’s not a bank, it’s not a mining company. It’s a healthcare company, it’s CSL. CSL has only been listed since 1994. What that just shows you is how dynamic the market has become. We’ve got a market also that not only generates strong capital returns, but also because of dividend imputation through the tax system also generates very strong tax effective income for investors.

Critical factors for successful investing

I would say after investing in the Australian market for 28 years, that one of the critical factors is really to understand change and to understand that the Australian equity market is very dynamic. We’ve been through periods of time where the mining sector, for instance, is halved in terms of its market weight. The banking sector has underperformed and is now at its lowest level since the GFC, as a relative percentage of the market. Yet the market has been a very strong performer and what that shows you is that there’s a dynamism to the market. We’ve had change, so we’ve had some sectors that have shrunk in importance, but we’ve had lots of other sectors that have become much more significant. When I think about healthcare, when I think about consumer discretionary, when I think about information technology, they’re all the growing parts of the marketplace. What’s really important to understand and work at how you participate in a successfully investing in the Australian equity market is to really embrace change and understand just how dynamic the Australian market really is.

What can investors expect from the T. Rowe Price Australian equity strategy?

When you think about the Australian equity strategy that we have, we’re looking for a certain type of company. We want to make sure that we own companies that are wealth creators. Typically, we like to call them the Australian global leaders and the really successful domestic businesses. If you think about companies that suite that sort of philosophy, it’s companies like CSL or companies like ResMed, companies that have been really successful in a domestic market and taken their expertise and capability global. Because the global market obviously allows these businesses to be able to grow in ways that a domestic market just can’t cater for.

We’re looking to identify and find the best of the Australian global leaders, if you want to think about it that way, and best of the domestic businesses also, that aren’t big enough to go global yet. We want to put together a portfolio of those businesses. Really, it’s about having those really key wealth creators and making sure also that they also have very good levels of debt, and so strong balance sheets as well. They’re all the things that go into our mix that define quality and growth.

Why do you focus on quality growth companies and what makes these companies unique?

The reason why we focus on quality growth companies is we want to own businesses that we think are going to be substantially more valuable in the future. So here we’re talking about wealth creation and value creation. We’re not just looking at what happens today, we’re looking at what happens in three years or five years or 10 years down the track. The reason for that is that’s how we really are going to generate strong returns for our clients. We spend a lot of time thinking about a business today, it’s returns, how profitable a business is, and just as importantly, how it’s going to grow over a long-term period of time. Because if we can identify those companies and put them together in a strong portfolio, then those are the sorts of companies and that’s the sort of portfolio that’s going to be able to deliver the returns that our clients expect.

The other thing, which is very important about those companies also, is that we need to think about the risk of those businesses. There will be things that go wrong, but what you tend to find for those companies that have got the ability to grow and are very profitable is that those kind of hiccups along the way tend to be quite short term and they can grow their way out of those problems. We think that this great combination of businesses, we call them the quality growth businesses, that have got really strong and attractive returns. They’re lower risk, but overall, if you think about it, the unique thing about them is their ability to really be more valuable business in the future through value creation.

What does the T. Rowe Price global research platform offer investors?

What is the global research platform? When you think about it, it’s a collection of people. It’s a collection of people around the world. We have a team in Sydney, we have teams in the key locations around the world, US, Europe, and Asia. What all that means is that we’ve got more than 200 investment professionals on the equity side talking to each other a lot. So that means we have more eyes and more ears on your investment than we think probably almost any other manager in the world. So that gives us knowledge, it gives us insight, and really it gives us the ability to identify opportunities and understand risks, we think, in a far superior way than our competition can.

By having people around the world who are looking at your investment every day, it means that we can really create, not only a really strong portfolio in terms of the investment returns, but also stay on top of the risks. We think that we know more about companies, more about sectors than the competition does, and therefore we can generate a portfolio that’s able to better meet a client’s needs by being able to tap into that global research network.

Randal Jenneke

About Randal Jenneke

Randal Janneke, CFA is a portfolio manager and head of Australian equities in the International Equity Division of T. Rowe Price based in Baltimore. He is a vice president of T. Rowe Price Group Inc. and T. Rowe Price International Ltd. Randal currently manages strategies dealing in Australia equity, using a growth investment style.

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