Image source: Redpoint
Ask A Fund Manager
The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Redpoint Australian Equity Income Fund portfolio manager Max Cappetta gives his thoughts on where ASX shares are now and where they are heading.
Investment style
The Motley Fool: How would you describe your fund to a potential client?
Max Cappetta: My name is Max Cappetta and I am the portfolio manager for the Redpoint Australian Equity Income Fund.
The Redpoint Australian Equity Income Fund seeks to capture a higher and more consistent gross dividend yield relative to the S&P/ASX 200 Index (ASX: XJO) and is specifically managed for zero-tax rate retiree investors.
We take an active approach to investment management focusing equally on capturing a higher income — through dividends and buybacks — and stock selection to deliver better total returns over the long term.
MF: The world has changed so much since we last spoke. How do you see the state of play at the moment for ASX shares and where do you see it going?
MC: We've obviously had the revaluation we had to have, if you will. Interest rates are on the way up. The ASX 200 is probably back to where it was in the middle of 2019 in price terms.
Interestingly, we're at 1.35% on the cash rate. In May 2019, we're at 1.5%. So, we're, in many ways, back to where we started, albeit there's been a lot of volatility in between.
I think the big question now is where do interest rates peak in this cycle? What is inflation going to do, which will obviously drive that decision on interest rates? And are we going to see an economic slowdown or are we going to see recession?
If we see a slowdown, there's one set of outcomes and… if we're going into a recession, then maybe you want to be looking at even more defensive positions, looking at things like company quality as being a place to hide in the meantime while this revaluation of markets continues to play out.
The interesting thing I think for us, particularly when we look at the opportunity for income investors, is really the dynamics of where income is being earned in the Aussie equity market.
I think it's going to be a really interesting thematic over the next year or two. We saw iron ore and resources very strong last year. And while there were a lot of good cash payments of dividends, the share prices were volatile given what was happening in China. We've now got a setup where the energy sector, the big oil and gas giants are going to be really leading with massive record dividend payments over the next six to 12 months, given what's happened to energy prices.
We just need to be careful that if there is some resolution in Ukraine, and if we do in fact see global demand and global growth weaken, then that causes those commodity prices to come back.
But otherwise in the near term, there's certainly good earnings to be had there while I think people start to reposition back into the industrial sector to get earnings growth that will emanate over the next few years — now that we are hopefully really getting out of the post-COVID and in many ways, getting back to some economic growth… once we figure out exactly where interest rates are going to stop.
