Why 7% of this fundie's portfolio is invested in Telstra shares

Telstra is an important stock for this fund.

| More on:
Two male ASX investors and executives wearing dark coloured suits sit at a table holding their mobile phones discussing the highest trading ASX 200 shares today

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Telstra Group Ltd (ASX: TLS) shares play a relatively minor role in the overall ASX share market. But one fundie has made it a large position in their portfolio.

In the Vanguard Australian Shares Index ETF (ASX: VAS) portfolio, which tracks the S&P/ASX 300 Index (ASX: XKO), the ASX telco share was less than 2% of the VAS ETF portfolio at the end of August 2024.

In the Investors Mutual (also called IML) Australian Share Fund portfolio, Telstra shares had a 7.3% weighting. Only CSL Ltd (ASX: CSL) and Commonwealth Bank of Australia (ASX: CBA) had larger allocations than Telstra, with position sizes of 10.9% and 8.6%, respectively.

Why do IML like Telstra shares?

Talking to the Australian Financial Review, IML portfolio manager Darren Moore said the current Telstra position size is one of the highest concentrations the fund has had during its ownership of Telstra shares.

Moore noted that Telstra has the biggest scale and a "superior network", which allows the telco to charge higher prices because of its commanding position.

Moore also said:

We had a price war a few years back, and then the industry consolidated, and there's only really three players. Optus and Vodafone barely make any money in mobile despite billions of investment. To justify further investment, they still need to earn a return, and that's why we're seeing mobile prices starting to lift.

They've been going up for the past three years, so I think most people will be probably surprised that Telstra's earnings growth over the past three years is up over 30 per cent.

How does the fund manager pick stocks?

Moore explained that Investors Mutual first focuses on a business' quality and then determines whether it's priced cheaply or not.

The fund manager believes that if an ASX share is higher quality then it should have a higher valuation, but value investors can also own those sorts of businesses.

Telstra is the type of business that attracts IML in this environment, even if it hasn't delivered strong returns recently because the market tends to ignore more resilient companies.

Moore said:

Our investment approach favours companies which are less impacted by economic stresses. When we're in more upbeat and exuberant times, the market is much more excited about the themes of the day; right now, it's anything artificial intelligence or tech-related.  

History shows us that the cycle always turns, and when investors' sentiment turns, the market regains its love and appreciation of businesses with those more resilient characteristics.

Telstra shares seem to be one of the investments in which the IML investment team has a high level of confidence, including the telco's ability to compound earnings in the next few years.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Communication Shares

A couple stares at the tv in shock, with the man holding the remote up ready to press a button.
Dividend Investing

Why Macquarie expects this high-yielding ASX All Ords stock to charge higher AND boost its dividends

Looking for a quality ASX dividend share with strong growth potential? Read on!

Read more »

A woman sits in her home with chin resting on her hand and looking at her laptop computer with some reflection with an assortment of books and documents on her table.
Communication Shares

Is there more upside for CAR group or REA group shares?

Let's see what this broker has to say about these ASX 200 stocks

Read more »

A woman standing in a blue shirt smiles as she uses her mobile phone.
Communication Shares

3 reasons why the Telstra share price could be a top buy

I’m still calling this leading ASX share a buy.

Read more »

A businessman presents a company annual report in front of a group seated at a table
Communication Shares

Superloop and Aussie Broadband shares: insights from Macquarie's roadshow

Here’s what the broker expects from these two telecommunications companies. 

Read more »

Young woman thinking with laptop open.
Communication Shares

6% potential yield? Here's the Telstra share price and dividend forecast

Can the telco deliver strong returns?

Read more »

Delighted adult man, working on a company slogan, on his laptop.
Communication Shares

3 reasons to buy this quality dividend-paying ASX 200 stock today

A leading fund manager expects more near-term outperformance from this ASX 200 dividend stock.

Read more »

Delighted adult man, working on a company slogan, on his laptop.
Communication Shares

Macquarie initiates coverage of Superloop shares with outperform rating

The broker reckons Superloop has what it takes to soar.

Read more »

woman on phone
Communication Shares

Here's the earnings forecast out to 2029 for Telstra shares

Are further Telstra share price gains possible? Let’s consider the earnings outlook.

Read more »