Fund manager Tribeca Investment Partners took profits from some of its Australian stock positions during October, when the market had a strong return.
The S&P/ASX 200 was up 4 per cent in October and Tribeca’s Alpha Plus Fund was up 4.75 per cent. It was the best monthly performance for the market since December 2015.
Tribeca sold down ANZ, ResMed, and Janus Henderson, citing profit-taking after strong earnings or share price performance.
It also reduced its holding in CSR, ahead of what it expects to be a weakening outlook for building products as the housing cycle softens. And it sold Brambles stock, concerned that cost pressures would hit margins and weaken earnings.
Fund manager Sean Fenton says: “Domestically, there is stronger evidence that the housing cycle has peaked and this is likely to be reinforced by APRA’s efforts to rein in aggressive mortgage lending. A heavily indebted household sector that is experiencing flat to negative real income growth as well as dealing with high energy and healthcare costs, and has drawn down on its savings, is unlikely to fill the gap in growth.
“Further downside risk to the economy may emerge if the current tightening in mortgage ending standards pushes house prices lower and generate negative equity effects.
“State governments are effectively recycling stamp duty revenue into road and rail infrastructure, which will provide some offset to activity.”
Fenton says the portfolio is underweight gaming and is increasing its underweight in building materials, developers and retail. It has a small overweight to banks.
Its buys during October included Macquarie Group, Commonwealth Bank, IOOF Holdings, WorleyParsons and The Star Entertainment Group.
Fenton says Macquarie delivered an impressive first-half result, driven by strong performance fees, a buyback and strong performance from asset management.
He says Tribeca has reduced its underweight in CBA, as the stock reached valuation support and its operating environment is improving.
His view of IOOF’s acquisition of the ANZ wealth business is that it will be transformational and should deliver strong synergies and drive double-digit earnings growth. Tribeca participated in the capital raising associated with the ANZ acquisition.
Tribeca also participated in WorleyParsons’ capital raising to acquire Amec Wheeler Foster’s North Sea operations. “We expect the company to deliver synergies over the next three years and we see value at current prices,” Fenton says.
The fund increased its holding in The Star after the company delivered a strong trading update at its annual general meeting. “We expect earnings momentum to improve and drive further multiple expansion,” Fenton said.
