In an environment characterised by poor growth and low interest rates, investors should look to underearning assets in order to generate a return in the long term, says Australian Unity Investments (AUI).
Speaking in Sydney yesterday, AUI fund manager Wingate Asset Management chief investment officer, Chad Padowitz, said significant opportunities exist in assets that are underearning.
“Opportunities [are] in dislocations in valuation, it’s effectively a sentiment issue," Mr Padowitz said.
“If you have enough patience there is significant opportunity [in] companies that are significantly underearning and undervalued.
"When that reverses, it’s a very violent leap upward,” he said.
Don Williams, Platypus Asset Management chief investment officer, added that investors should place an emphasis on identifying growth and seeking quality.
“We believe fiscal 2016 is likely to be another ‘post-GFC’ year where good stock pickers will be rewarded, as quality earnings will be scarce and valued by investors,” Mr Williams said.
Commenting on the current macro environment, Mr Padowitz said the challenge for the global economy is to kick-start real economic growth.
“The significant improvement of the market over the last couple of years, which we actually think is coming to an end, was not driven by growth [but] driven by the reversal of a negative environment,” Mr Padowitz said.
Mr Padowitz said both revenue growth and economic growth will be needed if interest rates are going to be pulled higher.
Mr Padowitz added that Australia is on the wrong side of global growth.
“I think relative to the rest of the world, everything is going to be tougher here than it has been,” he said.
Mr Williams added that Australian investors will need to familiarise themselves with a new investment environment.
“I think Australian investors will have to get used to GDP numbers with a ‘2 handle’ and not a ‘3 handle’ which has been the historic rate,” he said.