Markets

How MLC Asset Management would invest $10,000 right now

Wed 12 Jul 23, 3:06pm (AEST)
Expert Insights PrimaryYoutube (83)
Source: Livewire Markets

Key Points

  • Market valuations are uncertain, but there are opportunities for investors who are willing to carefully evaluate risk
  • MLC Asset Management's Anthony Golowenko would invest $10,000 in Seven Group, Nick Scali and Ingenia Communities
  • Golowenko believes these companies are all well-positioned to weather the current economic challenges and deliver attractive returns over the long term

We are just three weeks away from an incredibly fascinating August reporting season. Over the next few weeks, corporates will start to differentiate themselves from their competition. Cost pressures have alleviated in some sectors while pressures on consumer spending are only just starting to bite in others. 

And in a world of 4%+ interest rates, companies with dividend-paying reputations will have to start competing with term deposits and bonds for the best places to find yield. 

For MLC Asset Management's Anthony Golowenko, it's all about finding quality reliable assets and not being heroic at a time when the market is so bifurcated. 

Golowenko is part of MLC's managed accounts team, managing more than $1 billion in assets under management. And today, he tells us how he would invest $10,000 of new capital in today's market.

In case you've missed part one and two of this series, you can click here:

Golowenko will be faced with the same two thematic questions around valuations and the investment process. And as with the first example, he can nominate up to three assets. Finally, any cash that doesn't get used goes into a term deposit fetching a 4% yield. 

What's your read on market valuations currently?

Considerable uncertainty is reflected in the wide dispersion in valuations across asset classes, sub-asset classes, and sectors, right down to the individual security level. I believe the risk dimension of investment opportunities needs to be carefully considered at this time. 

Specifically, the risk-reward potential in areas of valuation appeal including Japanese, UK and China equities and more broadly selective higher quality credit. In short, opportunities exist, however, they need to be carefully evaluated and judiciously pursued. 

How did you pick the assets for this experiment?

I encourage investors to maintain a diligent ‘quality’ lens and believe a range of appealing risk-reward opportunities can be accessed to deliver attractive total returns, while at the same time presenting a reduced risk of outright capital losses.

MLC AM's $10,000 ideas

Company

Stock code

Allocation (%)

Seven Group Holdings

ASX: SVW

50

Nick Scali

ASX: NCK 

30

Ingenia Communities

ASX: INA 

20

The case for Seven Group (ASX: SVW)

While recognising the influence of cyclical tail-, cross- and headwinds, the combined exposures provide what can be seen as reasonably priced, high-investment quality exposure to five underlying business units. 

I see resilience in the core WesTrac and Coates businesses, a margin recovery in the Boral (ASX: BLD) turnaround, medium-term LNG demand-supply imbalance within energy, and the digital pivot/digital enablement within the Media division (not withstanding near-term headwinds in reduced advertising spend) coming together in support of this opportunity.

The case for Nick Scali (ASX: NCK)

The impact of central bank rate-rising programs is incredibly uneven across the economy and its underlying constituents. From those households with no or very low mortgages to those under varying degrees of strain or outright mortgage pain, and an increasing cohort of renters. The cost of living impact is very widely distributed.

Taking an appropriate investment horizon, for share market investors of at least three to five years, and arguably 10-years, I see Nick Scali as having increased exposure to low/no mortgage households less impacted by cost of living pressures. 

Further, their integration of Plush and operational and back-end efficiencies which are beginning to be demonstrated provide near-term appeal.

The case for Ingenia Communities (ASX: INA)

Ingenia Communities provides a more affordable housing solution to older Australians with lower levels of retirement savings, as well as via their Holidays business, and an ability to provide cost-effective domestic tourism cabins and sites to those households more acutely feeling the strain of mortgage and/or cost of living pressures. 

The development pipeline of Ingenia’s manufactured housing land lease business is likely to be delivered more slowly in the near term. That being the case, the medium-term housing affordability challenge and demand-supply imbalance should provide an offsetting tailwind. Established housing communities may offer strong underlying cash flows, where rental reviews can be linked to inflation.

Learn more

MLC Asset Management's portfolios combine their best thinking on asset allocation with a disciplined investment process - developed over 35 years - that optimises returns and reduces risk. For further information, please visit their website.

This article was first published for Livewire Markets on Wednesday, 12 July 2023.

Written By

Hans Lee

Senior Editor

Hans is one of the Senior Editors at Livewire Markets and Market Index. He created Signal or Noise and leads the team's coverage of the global economy and fixed income markets.

Get the latest news and insights direct to your inbox

Subscribe free