1) 2014 year of the IPO – around 40 industrial floats over the past year.
Due to the Global Financial Crisis (GFC) there was a backlog of businesses sitting on the side lines awaiting an improved stockmarket to enable the listing of these companies. With improved investor confidence the floodgates have opened and around 40 industrial companies have listed on the ASX over the past year. The average gain above issue price for this group of stalwarts was 12% at 30 September while only 10 companies were trading below issue price…….
2) Mining services – watch out below!
As the mining capex boom winds down we remain very cautious of companies exposed to the mining services sector. Despite what might appear currently to be cheap entry points into these stocks, we expect earnings to shrink materially over coming years. ……….
3) Financial services – not a question of if but when flows return to equities.
It seems inevitable that when consumer confidence improves people will again turn to equities for their longer term investment exposures. The current infatuation for risk free asset classes hardly seems sustainable given the low interest rates these instruments offer and results in most of these investments generating a negative real return after tax…………
4) Spoilt for choice – we continue to favour companies that can grow in any economic cycle.
Volatility distracts many investors from their medium term goals, which is to invest in quality stocks at the right price. At the end of October our fund will have a ten year track record of traversing a wide variety of economic conditions and outperforming the market on each occasion……
5) Overall valuations not demanding.
Currently Australian small cap industrial stocks are trading on a forward looking PE of around 14 times. Whilst the PE multiple has expanded considerably from the crisis levels of the GFC it is not as high as it might look. With the help of a recovery in the Australian economy we expect small cap stocks to return to the profit levels enjoyed prior to the GFC in which case based on current valuations their PE multiples fall to 11 times. If shares were to then trade back to the ten year average PE multiple enjoyed before the GFC of 15 times, Australian small cap industrial stocks share prices would as a whole rise near 40%….
see following September report for Emerging Companies Fund ….
Pengana_September_Quarterly_Review