Ask A Fund Manager
The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Red Leaf Securities chief executive John Athanasiou shows that even small-cap funds hold some large-cap ASX shares to protect against volatility.
Investment style
The Motley Fool: How would you describe your fund to a potential client?
John Athanasiou: Red Leaf Securities is a boutique brokerage firm that specialises in small-cap stocks — small Australian equities.
We follow a top-down approach to investing, so we pick the sectors that we believe will outperform the market, then do our research. And from there, we pick the best company within that sector. Essentially, our objective is to provide alpha to our clients by adding under-researched Australian companies to their portfolios, which are typically in the small-cap space.
MF: What's your investment horizon like?
JA: It varies, but typically, we like to see a result in the small-cap space over six months to a year.
MF: The last couple of months have been a tough time for all ASX shares, but especially small caps. They've taken a bit of a battering, haven't they?
JA: They certainly have, particularly in the technology sector.
We all know the two primary reasons for that: the situation in Ukraine and concerns over rising cash rates [and] inflation. We believe that this provides an opportunity to have another look into the small caps space.
ASX shares with biggest convictions
MF: What are your two biggest holdings?
JA: Even though we specialise in small-cap stocks, we also have large-cap stocks. We want to be conservative. As I mentioned, our objective is to create alpha, so that does allow us to have an overweight position in the large-cap stocks.
One of our two biggest holdings, in light of that, is Macquarie Group Ltd (ASX: MQG).
Obviously, it's benefitted from a low-interest-rate environment. It pays a dividend of circa 3% on a given day. And we believe in the short to medium term, it will benefit from the disruption that we're seeing now in the energy markets.
On top of that, going forward, there is real potential for the green investment businesses to outdo their utilities and infrastructure investments. We foresee that as a potential upside going forward.
MF: A couple of months ago, Macquarie actually became one of the big four banks, didn't it?
JA: It technically did, yes.
And talking about the big four, our other biggest investment, and it sounds really boring, is actually Australia and New Zealand Banking Group Ltd (ASX: ANZ).
Their margins have slightly decreased, but we see that improving. All the big four, essentially, will benefit from rising rates. That'll improve margins and it'll moderate the negative impact low interest rates have had on their margins.
In addition to that, we know that ANZ has made a lot of progress in simplifying their home loans. They've lost their market share, but they've improved their back office, their technologies.
Which means that your home loan will be approved in a far more timely fashion compared to its peers.
MF: They copped flack for lengthy loan approval times in recent years, haven't they? So plenty of upside there?
JA: Yeah, there's the upside. So that's why we picked them out of the big four.
