Rapid Fire: Value investing and opportunities on the ASX with Dr Philip Hofflin

It wasn't that long ago that investors were heralding the death of Value investing. The investment style developed in the 1920s by Benjamin Graham suffered a torrid decade of underperformance, forcing investors to question if buying 'cheap stocks' was still a valid strategy.

Dr Philipp Hofflin, analyst and portfolio manager at Lazard Asset Management and passionate value investor, believed that Value would shine again and refused to budge from the firm's disciplined approach.

Hofflin was vindicated, and in recent years, Lazard's Select Australian Equity Fund has regularly featured on top of the Australian equity performance tables.

In this rapid-fire interview, Philipp explains the basic principles of Value investing and shares a few of the opportunities he sees on the ASX today.

Topics discussed

• 0:00 - Intro

• 0:12 - Value investing principles

• 0:33 - The pleasant surprise from reporting season

• 0:53 - Philipp’s top two financial metrics

• 1:10 - Can China restart the growth engine?

• 1:20 - The Qantas fiasco

• 1:34 - The energy source with the best outlook

• 1:54 - Two words to describe the Lazard Select Australian Equity Fund

Edited Transcript

Describe value investing in just two sentences

Tough ask. I would say it's taking advantage of greed and fear in the market to buy stocks that trade on very low expectations, and that means low multiples, high yields.

Why does it work? It works because high expectations are more likely to disappoint. Low expectations, well, you can actually do a bit better than expected.

What was the result from your portfolio that gave you a pleasant surprise this reporting season?

Look, this reporting season, a couple of good ones. Monadelphous (ASX: MND) is probably a bit of a standout. Well received, but for us it was really important that it really confirmed our view that it's a very high-quality business and it's the right place to be for picks and shovel company to take advantage of the Capex boom for the energy transition.

If you had to pick one financial metric as a go-to for assessing a prospective investment, what would it be and why?

I'll go for second year forward PE, and the next thing you do after that is you go to the balance sheet to see if that's just due to high debt.

True or false, China will be able to restart their growth engine.

I think they are able to. The question is are they willing, and I think we just have to say, we'll see.

The Qantas Fiasco, storm in a teacup or a source of major concern.?

If it leads to less government support and if it leads to changes in laws that mean that airlines have to compensate passengers, which happens almost everywhere else in the world, it's a real problem.

Which energy source has the brightest outlook over the next five years?

In terms of growth, clearly wind and solar. In terms of returns, probably gas.

Have you got a preferred play?

We still like Woodside (ASX: WDS) and also Santos (ASX: STO). The thing here is that Asia doesn't use enough gas, it needs more gas. It's the biggest emissions reduction opportunity on the planet.

What are two words that best describe the portfolio of the Lazard Select Australian Equity Fund?

Disciplined, valuation.

Thanks for being part of our Rapid Fire video series.

Thank you.

This article was originally published for Livewire Markets on Wednesday, 13 September 2023.