Melbourne-based fund manager SG Hiscock, overseeing $3.3 billion in assets, recorded a robust August performance following a challenging year. Senior portfolio manager Hamish Tadgell attributed this to underlying fundamental strength prevailing over macroeconomic crosscurrents. The recent reporting season saw many earnings “meets” perceived as “beats” due to depressed valuations, with corporate activity and M&A acting as key catalysts. CSL, benefiting from positive immunoglobulin trends, experienced a relief rally. The materials sector, including BHP Group and Capstone Copper, also outperformed on strong gold and copper prices. Ampol gained from higher refining margins.
Tadgell observed reporting season results were generally better than feared, yet inflation remained the pervasive theme. He noted this inflation stems less from an overheating economy and more from global events, climate shocks, and significant AI investment, creating a bifurcated economy. While households are slowing, investment is strong in infrastructure, defence, mining services, and data centres. This complex scenario presents a dilemma for the Reserve Bank of Australia. Rising bond yields appear more linked to growth concerns and government debt levels than inflation expectations. The aggressive repricing of interest rates has driven a rotation away from domestic cyclicals, like consumer discretionary and Real Estate Investment Trusts, and long-duration assets. SG Hiscock has been underweight in these sectors, acquiring quality businesses during sell-offs.
Among specific holdings, Tadgell highlighted Amplitude Energy, an east coast gas producer. Under new management, the company shows improved production and cash flow, with clear visibility on Otway growth projects. Successful drilling results are progressing towards a final investment decision, offering a low-risk project to backfill infrastructure in Australia’s tight east coast gas market, with a projected 25 to 30 per cent share price upside. He also identified Light & Wonder as significantly undervalued, trading at about half the price-earnings multiple of Aristocrat Leisure despite mid-teens earnings growth. Tadgell suggested that a moderation in RBA interest rate increases could improve conditions for longer-duration and domestic cyclical names, reinforcing the importance of emotional discipline in investing.
