Image source: Alphinity Investment Management
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, Alphinity Investment Management portfolio manager Elfreda Jonker reveals how portfolios should be placed considering the uncertain times we live in.
Investment style
The Motley Fool: How would you describe your duties to a potential client?
Elfreda Jonker: I am the client portfolio manager at Alphinity Investment Management. I am responsible for creating Alphinity's content and really looking after our clients from a client queries perspective, or really just sitting as the middle man between the portfolio managers and the client base, ensuring that our clients get the best service from Alphinity.
But I do work very closely with both our Australia and global teams to ensure that I know what's going on in the portfolios and I represent the fund to clients generally doing presentations and so forth.
Alphinity is an active equity fund manager based in Australia. We manage Australian and global equity funds across core and sustainable strategies. So for the purpose of the discussion today, I'll focus on the Australian Share Fund. So that is a concentrated portfolio of about 35 to 55 high quality, large cap Australian listed companies, all of them being in an earnings upgrade cycle.
What we're looking for is we look for quality companies in an earnings upgrade cycle, trading at reasonable valuations. It's a style-agnostic fund, so it's designed to set as a core exposure in a portfolio and the key focus is to deliver consistent alpha through various market cycles — so either a growth or a value cycle. We're style agnostic so we can hold any style company as long as it's got those underlying characteristics I've explained.
MF: The world has changed dramatically since we last spoke about a year ago. How do you see the market at the moment and where do you see it going?
EJ: Clearly since we've last spoken, the market had a massive rally and then a big pullback again. If you look at the market versus a year ago, the market is certainly much cheaper than what it was, but I think the world is also a bit more of an uncertain space.
Even post-COVID, we had a fantastic rally even through this period, but I think now we are at the point where it's a little bit uncertain if the world's actually going to go into a recession or not. I think if you look at it from an international perspective, it's probably more uncertain than what we have here in Australia.
The way we currently see it is that the overall market has derated quite a bit, but if you exclude the cheaper commodities and banking stocks, the rest of the market is actually not as cheap.
So with that, the combination of a lot of uncertainty around the earnings and where earnings growth is going to come from, we think we definitely [are] still in an earnings downgrade cycle. At this point in time for us, we have been transitioning our portfolio to be a bit more defensive over the last number of months. We're definitely more exposed to the value defensive side of the market currently rather than in very highly valued, high growth companies, which we think is a bit of a difficult environment to be in.
We have overweight positions in some of the more defensive parts of the market like insurance, for example. But for us it's very much about bottom-up stock selection and looking for each of those companies in the various sectors that's high quality, that's got strong balance sheets and that can still grow earnings in an environment where the overall market might not be able to.
