The outlook for Australian equities is gloomy, with the easy money already made and valuations now stretched, according to Maple-Brown Abbott’s managing director and chief investment officer Garth Rossler.
“Domestic equities have had a strong run with long-term returns in the range of 9-10 per cent, however, multiples are now reasonably full and earnings are depressed so we expect returns to be lower,” he said.
“We still believe Australian equities will do okay relative to other asset classes such as fixed income.”
Rossler said the current, challenging market conditions highlighted the importance and value of active management and fundamental bottom-up stock picking.
“For the past few years the focus has been on sector rotation but that’s not such an easy call anymore. Cyclical stocks were all cheap 12 to 18 months ago but now they’re sitting on significant premium multiples with no downside protection,” he said.
The Maple-Brown Abbott Australian Equity Trust returned 30.8 per cent for the year to October 31, 2013, outperforming the S&P/ASX 300 Accumulation Index by 6 per cent. Over the five year period, the fund delivered 11.1 per cent, on par with the benchmark.
Rossler said Maple-Brown Abbott’s value style of investing had performed strongly in the last few years, largely because the materials sector had significantly underperformed.
“There are a lot of growth stocks in the materials sector which is why that sector has struggled,” he said.
Maple-Brown Abbott is currently underweight the banks with an overweight position in mining and resources stocks.
“We like resources but the issue is what will happen to earnings. Commodity prices are expected to come under further pressure but we think people are being too pessimistic,” Rossler said.
“In addition we believe the Australian dollar will continue to weaken over time which will derive benefits for resources companies.”
