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, Medallion Financial managing director Michael Wayne explains how investors can navigate their ASX shares through the current anxiety.
Investment style
The Motley Fool: How would you describe your fund to a potential client?
Michael Wayne: My name's Michael Wayne, I'm the managing director of Medallion Financial Group. We're primarily a private wealth advisory firm. We assist a lot of investors, and a lot of self-managed super funds, invest in the share market. Our primary focus is the ASX 300. Although we do use a lot of ETFs and LICs to gain exposure to international markets, our area of expertise is the ASX 300.
We're also about to launch a managed fund as well. Same sort of strategy that Medallion has been employing for clients for a number of years, however, this would just open up a funds structure which is appealing to different types of investors and different types of people.
MF: That's pretty exciting. When do you expect the fund to go live?
MW: Well, we've got all the codes and we've signed off on all the paperwork, so it's just a matter now of pulling the trigger, putting together that base load investment or the initial seed investment… But I imagine, fingers crossed, in the next month — maximum two months.
MF: It's a great time to launch a fund when the market is bottoming.
MW: Yeah, fingers crossed. It certainly has been a tough year, but things could always get worse before they get better and there's a lot of issues out there at the moment, whether it's inflation, interest rates, the conflict in Ukraine causing havoc with grain prices and energy prices.
It's a very tough environment, probably the toughest it's been since the GFC. But we've had a very good five years leading into this period so just going to navigate it as best as we can. And in time, history suggests that things will improve and history has also suggested investing during periods of turbulence and turmoil actually sets you up for the best returns in the next two, three, four years.
MF: Where do you see the market going over the next year or so?
MW: Forecasts are very challenging. But look, again, referring to history is probably the only thing you can do — and history suggests that we're probably halfway through the sell-off in terms of duration, not necessarily magnitude.
I would think that the majority of the falls, certainly looking at the US market, have been felt, but I can definitely foresee a situation where markets have another leg lower and go for another 10, 15%.
Look, it's not uncommon for there to be many bear market rallies during the course of a bear market. The market, at the moment, is really hanging on every single data point, that's why you're getting these mild durations. I definitely think, looking at the next few months, we'll continue to see volatility. There'll be periods where [the] inflation number comes out, and it's softer than the market is expecting, the market gets excited and then it needs to be followed up the following month with stronger-than-expected inflation.
I just expect the volatility to continue, but there are definitely a lot of high-quality stocks with good balance sheets that have come back a long way, where if investors are taking a three- to five-year view, should be able to do quite well. But you've got to have the stomach to withstand further falls, potentially, in the short term.
MF: Is your advice to clients at the moment to not worry about waiting because it's going to be a long term investment?
MW: Not necessarily. I mean, a lot of our clients are holding a large amount of cash, probably between 20 and 30% in some cases. And for those clients that don't really want to feel the volatility and don't want to put too much risk on the table, we also have been looking and discussing hedging positions using the short Global X Ultra Short Nasdaq 100 Hedge Fund (ASX: SNAS) ETF for instance. And again, that might not be a full or entire hedge of your portfolio but it might be a partial hedge of your portfolio. That way, it can smooth out some of the wild swings that we've been seeing.
MF: Have you had a few phone calls this year to clients who are anxious, and you've had to re-emphasise the long-term nature of investing?
MW: Yeah, look, absolutely it's been a challenging year, but it's quite interesting because we get two types of clients. You get those clients who are desperate to put more cash into the market on the first sign of weakness and we've probably been trying to temper that enthusiasm a little bit. On the other hand, you get the clients that get spooked very easily but it's never pleasant when portfolio values are dropping and people are losing money.
There's no doubt about it — we've had clients who have come, say in the last 12 months, who unfortunately haven't got off to the best start. That's never a pleasant way to get a relationship off the ground but the environment that we're dealing with and we're trying to navigate it as best as possible.
[We] reduce the downside as much as we possibly can by investing in high-quality businesses that we think, over time, will stand the test of time. If anything, during these market downturns and potentially recessions, has the capacity to improve their market position and build their market share and often things, those sorts of companies emerge from these turbulent days in a much stronger position overall, which sets them up for a good period of future growth.
