The high-performing fund manager Wilson Asset Management (WAM) has recently identified some ASX shares that it owns (or owned) in one of its leading portfolios.
WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).
There's also one called WAM Leaders Ltd (ASX: WLE) which looks at the larger businesses on the ASX.
WAM says WAM Leaders actively invests in the highest quality Australian companies.
The WAM Leaders portfolio has delivered gross returns (that's before fees, expenses and taxes) of 15.5% per annum since inception in May 2016, which is superior to the S&P/ASX 200 Accumulation Index average return of 10.8%.
These are the ASX shares that WAM outlined in its most recent monthly update:
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Suncorp Group Ltd (ASX: SUN) and QBE Insurance Group Ltd (ASX: QBE)
The fund manager pointed out that the insurance sector performed strongly in August. WAM saw that reporting season revealed that premium rates are strong, volumes are stable and margins are improving.
The QBE result gave "clear evidence" that it has significant leverage to the strongest commercial premium rate cycle in the last decade. The top line growth is beating the inflation claims and it's driving an almost doubling of underlying underwriting profits compared to the previous year.
Turning to Suncorp, the team at WAM Leaders liked that the insurance and banking business announced an increased final dividend as well as a $250 million share buy-back with its FY21 result. This highlighted for the fund manager that management are confident in the improving underlying trends across both the insurance and banking divisions.
WAM is still positive on the outlook for general insurance. There are possible catalysts for the ASX shares, with potential COVID-19 provision releases, continuing improvements in profitability and bond yield exposure.
Star Entertainment Group Ltd (ASX: SGR)
Another ASX share that WAM Leaders referred to was the casino operator Star Entertainment. It benefited from a number of value creation opportunities in August, according to the fund manager.
Star was affected by the recent lockdowns across Australia, although WAM said it demonstrated that consumer demand returns to pre-COVID levels in periods of lower restriction, on a reduced cost base.
The fund manager also pointed to the potential sale and leaseback of the ASX share's Sydney casino, which could realise approximately $2 billion in value for shareholders.
Another element of interest was that it's in formal negotiations with the NSW government to increase the number of gaming machines at The Star Sydney from 1,500 to 2,500.
WAM is still positive about Star Entertainment's outlook due to the potential for an earnings recovery as Australia exits lockdowns, the company's strategic optionality and "attractive valuation".
