The contrarian take on the Australian market (and stocks to watch)

Please note this interview was filmed on Tuesday 12 March 2024.

Fund profile

• Name of the fund and ASX ticker: WAM Leaders Limited (ASX: WLE)

• Asset Class: Australian equities

• Investment objective: To deliver a stream of fully franked dividends, to provide capital growth over the medium-to-long term and to preserve capital by investing in large-cap undervalued companies.

• Link to Fund page

What the ASX bulls might be missing in today’s market

Earlier this year, Livewire asked a range of fund managers how they were feeling about the market – the answer was "greedy". The bulls were out in force. After spending much of the past couple of years talking about recession, there was optimism in the air and a desire to spend (on stocks, that is).

However, Matthew Haupt, Lead Portfolio Manager for WAM Leaders (ASX: WLE) is wary and taking a more defensive approach. You could say in light of the recent reporting season that this is a measured view.

“Why are valuations high and what are we seeing in the data to support that? It’s actually contrary to what we’re seeing in the data where there are signs of stress through credit. Also, the job market is weakening, and retail sales is weakening,” says Haupt.

He credits the general exuberance to the market hopes of rate cuts this year.

“We think interest rate cuts will come, but they’ll come off the back of worsening data, which won’t be supportive for valuations,” he says.

He is currently running 3-4% cash in the portfolio, which has been known to go as high as 14% in the early stages of the COVID pandemic. To get to that point again, Haupt notes there would need to be a severe market shock.

Where to invest across Australia

Valuations are high across sectors at present, but Haupt does see selective opportunities.

In what may come as a surprise to many, Haupt tips value in consumer staples.

“Woolworths (ASX: WOW) has gone through a few issues in the short term. We’ve had a change of CEO, the ACCC is watching closely. There’s a lot of scrutiny but we think that sector will perform well,” he says.

He also holds a positive view on the utilities sector, pointing to Origin (ASX: ORG), AGL (ASX: AGL) and APA (ASX: APA) as ones to watch.

“If we go into this interest rate cutting cycle, which we think will happen over the next 12-24 months, utilities do very well,” he says.

In discussion at the Australian Stock Exchange in Sydney.

Two contrarian stock picks

It’s never been a secret that Haupt likes holding stocks that other people don’t, where such stocks adhere to certain quality standards.

A few examples follow:

1. Orora (ASX: ORA): Spun out of Amcor (ASX: AMC), Orora recently made a large acquisition in the form of French company Saverglass.

“The market is very sceptical around premium wine and spirits. They are saying de-stocking phases will go on for longer, and we think that’s actually turning now,” Haupt says.

2. Challenger (ASX: CGF): The investment management business had a challenging 2023, though its 2024 interim report showed a promising boost.

“We think the interest rate cutting cycle provides support for their asset base,” says Haupt.

Other themes discussed

In the interview above, Haupt also discusses the bid for QV Equities (ASX: QVE) and how he sees it adding to the WAM Leaders portfolio. If dividends are an important part of your portfolio, you may also want to tune in for his discussion on managing this income stream in an environment where we’re seeing dividend cuts.

This article first appeared on Livewire Markets.