The extraordinary returns of Australian equities in January and February have made it a "challenging time" to be a value manager, says Investors Mutual boss Anton Tagliaferro.
Speaking to InvestorDaily, Mr Tagliaferro noted that the Australian equities market returned 10 per cent throughout January and February – and seven per cent in February alone.
“That’s three times the [RBA] cash rate in one month. I don’t think that’s a normal type of return,” he said.
The extremely low returns of Australian bonds have also contributed to a "toppy" equities market, he added.
Investors Mutual's funds are required to be 90 per cent invested, so any overvalued stocks that are sold must be replaced with an undervalued stock, Mr Tagliaferro said.
In addition, the firm’s new listed investment company QVE (which was launched last year) must move from a position of 60 per cent invested to 75 per cent invested over the next six months.
Mr Tagliaferro admitted that his investment team is currently scrambling to find appropriately undervalued stocks to purchase.
“You just have to be patient. And I guess I’ve been around long enough to know that the market can change direction pretty quickly,” he said.
“When valuations look a bit full it’s a matter perhaps of ‘when’ not ‘if’. At some point we will get volatility and we will get stocks worth buying,” Mr Tagliaferro said.
Investors Mutual is finding some stocks at the moment, but they are “at the margin” – and they certainly aren’t IPOs", he said.
“We’re also working very hard to trim stocks as they go up – which as a value manager you should be doing, and people expect you to do. It’s in your DNA,” Mr Tagliaferro said.
“We’re working doubly hard – and probably underperforming as the market goes up in seven per cent returns in a month,” he admitted.
Over the longer term, however, Investors Mutual has done very well, as evidenced by its recent performance in the Morningstar Australian Fund Manager of the Year Awards.
Investors Mutual was the Domestic Equities (Large Cap) category winner.
Commenting on the success of the large-cap fund, Mr Tagliaferro said his team had been cautious on resource stocks and bank stocks.
“Where we held positions was in sectors and stocks where we could see growth 12 to 18 months ago,” he said.
“We positioned the portfolio in stocks that we thought could grow independent of what the economy would do."