Ask A Fund Manager
The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Datt Capital principal Emanuel Datt predicts when volatility in ASX shares might calm and which sector he would stay out of.
Investment style
The Motley Fool: How would you describe your fund to a potential client?
Emanuel Datt: I would say that Datt Capital seeks to identify growth and special situation opportunities within Australian markets solely.
I would say that we invest in a concentrated but agnostic manner typically holding less than 20 positions, with the flexibility to invest across asset classes.
I'd also point out that the fund, since inception in 2018, has achieved an annual compound return of over 17%, which is about double what the S&P/ASX 200 Index (ASX: XJO) total return index has returned over the same period.
I think we've proven our ability to perform, whether it be rain, hail, or sunshine… and looking forward to more of it.
MF: Stock markets have changed significantly since we last spoke. How are you feeling about the situation at the moment?
ED: Yeah, pretty good. I think that we're expecting markets to stabilise a little bit over the next month or so. I think that a lot of heat has come out of the market over the last three months or so, and I think that's all part of the natural cycle ultimately. Not everything can go up in a straight line. There's always peaks and troughs.
MF: While inflation and interest rates were the big anxiety points in the first half of the year, the worries now seem to have moved to the prospect of a recession?
ED: Typically what we see is with higher inflationary times, there's typically a higher probability of a recession occurring, I would say. I should also add that things always tend to trend. If we're sitting [in] a bit of a downturn at the moment, whether that be in retail spending or whichever sort of metric you're tracking, these conditions tend to… trend for a period of time before reversing.
I think that it's pretty fair, the fears of a recession blooming. I think those fears are well founded.
MF: Despite recession fears, you are expecting the markets to stabilise in about a month or so. That's because markets are forward looking?
ED: Yeah, exactly. Markets are always priced according to what's expected in the future, rather than present circumstances as such.
I think that ultimately, as I pointed out before, the market has experienced a lot of selling towards the tail end of this financial year. We think that a lot of [share rises] over the next month or two will be just the stopping of tax-loss selling.
You generally have [a] pretty positive seasonal effect in July for markets typically. I think there's obviously plenty of money rotating into different stocks at the start of the financial year in July.
Definitely expecting July to be positive but beyond that, it's always hard to say, isn't it?
MF: Plenty of bargains out there for a long-term investor, you reckon?
ED: Yeah. Well, I think the markets have changed and I think it's just really making sure you've got exposure to the right sectors and opportunities.
What's worked over the past two to three years I don't think is going to be quite the same in the sense of the best opportunities and sectors to invest in. I think that ultimately [in] times of high inflation, it's always better to stick to more tangible and cash generative businesses, rather than opportunities that perhaps still have time to play out or are not yet tangible.
MF: What are some sectors that you might have participated in in the past that you're staying away from at the moment?
ED: Technology broadly, I think, is going to struggle going forward.
I remember the past two or three years we've been talking about price-for-sales multiples — that was a popular metric that we'd been seeing plenty of. But I think now it's all about just being purely focused on, "Okay, well has the company got positive earnings?"
Because if it isn't, then it might be a bit too risky for some investors ultimately. I think just about using metrics itself, they'll become overused, we'll be changing quite significantly.
