When what Lasts matters more than what’s Fast

Coming next, we have the Chief Investment Officer and Portfolio Manager of Prime Value Asset Management, Mr. S. T. Wong.

The Prime Value Opportunities Fund aims to deliver strong absolute returns for investors with a focus on downside protection over the medium term.

The fund is long only and invests in quality growing companies that are helped by strong management teams.

The manager believes that an unconstrained approach and a focus on identifying individual stock opportunities across all sizes, large, medium and small, offers the best investment outcomes.

The title of ST's presentation today is When What Last Matters More Than What's Fast.

Welcome, ST.

Great, thanks for the opportunity.

It's definitely an interesting time in the markets.

We are mid-year, roughly this point, just before reporting season.

And as you mentioned, Angelina, I managed to private value options fund, which is a absolute return fund focused on

wealth creation over the medium to long term with a strong downside protection.

So to maybe kick it off is to give some context as to who Prime Value is, the fund itself and the way we manage the fund, our beliefs, and certainly we want to overlay that to how we're looking at the market from a

longer term perspective given the market environment.

So with that, let me give you a short rundown of who Prime Value is and to give you a flavor as to our philosophies and beliefs.

We are boutique fund manager.

Based in Melbourne, we've been running equity funds since 1998, owned by a family office, and we have a well-resourced investment team looking into equities, Australian shares, but also from a broader perspective into other asset classes such as agriculture, infrastructure, private equity, and fixed income as well.

So broader offering from a family office perspective.

So that's who Primevalu is.

The options fund, as you mentioned, Angelina, is an absolute turn focus fund.

Just a few highlights as to how we invest, because the primary objective really drives how we look at markets, how we select companies, and certainly how we position ourselves to create wealth for our investors.

And that's been the case pretty much the last 25 years.

which has been the duration of when Primeal has been operating its equity funds.

So really our beliefs, we really believe that returns from markets or share markets are really driven by investing in companies.

So we don't really look at benchmarks as a measuring point.

But we also believe that minimizing mistakes is just as important as finding a witness in a market.

Certainly, as you do the math, if the value of your share fell by 33%, it'll have to rise by 50% to get your dollar back invested.

So minimizing mistakes is certainly a core part of how we invest and certainly drives our investment philosophy and objectives from our perspective.

The fund, the options fund that's been running since 2012 is recommended by Zenith and LaunchSec as well.

So basically recommended by both to the two largest, larger investment rating houses, as Angelina mentioned, actual return focus, looking to minimize risk, but looking at the most attractive options.

And what we mean by that is that we're looking across the full market spectrum from small companies

medium-sized companies, and large companies to generate returns for our investors.

So that basically is the fund.

The unique strategy for this fund is that it is structured across five categories or buckets and you see on the slide here.

And the strategy which we feel has been relevant over the cycle, so we invest in core companies and we overlay that with specific growth companies, turnaround companies, valuation companies,

and thematic companies, some of which I will share my insights as to how these companies fit into a portfolio per se.

We are an active manager, so we don't buy and hold.

We do have a longer-term duration, but what we found that over time since the inception of this fund has been a fund which has been holding

diversified pool of investments.

Consequently, it has been churning out or it's been reporting consistently low risk to the market and its peers as well.

So that's just an active manager perspective but with much lower risk and a strong downside protection.

which is where we come in.

At this juncture, as I mentioned earlier, we're about mid-year, just on the cusp of reporting season in Australia, but opinions are really split.

At mid-year, investors are broadly based for an economic slowdown, and on the back of that, corporate profits are expected to decline, interest rates as well appear to have peaked.

But at the same time, share markets have been rising since October 2022, which was the lows we saw in markets.

And in fact, you've used traditional measure of what a bull market is, which is 20% up from its low point.

It would suggest that US market is in a pretty much a bull market at this point.

So very different opinions in a market split as to an economic slowdown.

corporate profits coming up, but yet markets are rallying.

And on the back of that, we've got a few fast thematics coursing through the market.

Buy now, pay later, a couple of years back.

Lithium and EV or electric vehicles, largely a story of 2022.

Coal as well has been a hot thematic for 2022 as well.

Cryptocurrency seems to be coming back in the picture more recently.

So is AI.

and the Chinese reopening story that was since you know back end of 2022.

But what we're seeing at this juncture is that whilst market has tend to zig and zag, investors think things might be zigging but markets have in fact zagged from where we started 2023.

So really mixed opinions and one key questions that we have from our investors is how do you invest in such a market where

Opinions are divided, the indicators are quite murky and somewhat uncertain.

How do you as an investor looking for strong medium-term returns from a SLUR perspective make sense of the markets and the stocks that you buy?

So we're trying to answer that question for you in like next couple minutes and hopefully we'll be able to do that in a succinct and concise manner.

As I mentioned, inflation's been a topic since last year.

Growth has been coming off economically and corporate perspective.

And this is chart you see bottom left hand corner, which is the ESX 200 P ratio has been coming off.

But it is in line with the 20-year average.

But what's interesting is the chart on the bottom right-hand corner, which is the beta margins of Australian top 300 companies in Australia.

And that's been softening.

That's been coming off back to its average ratio of about 23.8.

suggesting that perhaps expectations are being wound back in the market.

But as I mentioned earlier, markets are rallying.

So how do we make sense of all this different dynamics in the markets per se?

Really, my focus is not to focus on the shorter-term aspect, but certainly from a longer-term aspect, we're seeing opportunities across a number of sectors in the market, and I'll share some of our insights with you.

One of them is healthcare, or demographic change.

The ageing population in Australia continues to be thematic, which continues to be

In our opinion, attractive from a longer term perspective.

In the near term, you'll find companies such as Regis Healthcare, which is an aged care company.

Actually, its share price has been coming off on the back of COVID issues.

providers in the aged care sector has been curbed in terms of labor and wages have been rising as well.

And part of the consequence of that is profits have been impacted in the likes of Regis Healthcare.

But in our view, the supply demand dynamics in the aged care sector remains really attractive.

We're all aging.

And certainly, as you see on the chart on the left hand side, the number of aged care providers in Australia is actually declining from 1,121 in

2021 to about 805 at the end of last year.

So providers are actually declining, but demand for aged care is actually rising because of the aging population.

And hence, we think that companies such as Regis Healthcare, which has got a collection of really attractive assets, we think in the medium term, that will be really attractive from a

from a share price perspective and as you can see from the chart here it fell from about six dollars back in 2014 roughly down to about just under about roughly about two dollars at this juncture.

So I think in the medium term there's really long term upside to this demographic thematic and specifically the likes of Regis Healthcare which has got a strong asset base to build off

One of the other companies that we are looking for investing in the medium to long term are companies which are improving its business profile.

And here we call out the likes of News Corp, which as you know, it's a large media conglomerate in the US with assets in Australia as well, including Foxtel.

One of the key aspects we found when researching News Corp is that it is a company which has been improving its business profile from a number of aspects.

It is diversifying its earnings away from pure newspapers or traditional media into digital media, and we think that's positive.

We think that the risk profile of the business, of the company is actually declining because of the diversity of its learning space.

And certainly from our perspective is one of the most unappreciated aspects of News Corp.

It is an undervalued company from an asset perspective.

So we think this is a company where it has got a number of undervalued assets.

rising digital earnings of subscriber base, diversifying earnings, and as such, it has a much more robust business profile compared to where it was, you know, five to 10 years ago.

So we plot here the chart, Newscorp share price, going back to 2013, we started to look closely at a company roughly in 2019, when we sensed that there was quite a bit of change happening in the company.

And these are changes we're seeing on a positive perspective in terms of digital earnings diversity and certainly earnings robustness coming through.

And that's why we started to initiate a position in News Corp in 2019.

And we think the runway to earnings growth should be quite long duration.

It has quite a long long-term duration to it and certainly quite comfortable holding on to the shares at this point or the medium to long term.

The final company I'd like to share with you is companies within the consumer sector.

One of the key aspects we've seen in the last few months is consumer spending coming under pressure.

And you and I suddenly feel that the price of milk has gone through the roof, the price of insurance premiums, what we pay on car insurance, insurances and home insurances has certainly gone through roof as well.

investors are trying to work out how deep perhaps the economic slowdown could be, but our sense is that consumer discretionary and media companies typically are early in in this declining phase, but the market is also quite undiscerning between companies and as a result we think that in the next six to nine months potentially

we think it introduces options for investors in the medium term within the retailing sector.

So the sort of companies we're looking for, you know, traditional aspects, typically we're looking for companies with strong balance sheets, low debt, strong management, good

market positions which they can build on.

Companies such as JP HiFi, I think will be looking quite prospective in the next six to nine months.

We may not be there right at this minute, but certainly these are companies we're doing quite a bit of work on with review or taking a position in some of these companies as share price pressures potentially come under stress with the slowing economic outlook.

To bring it all together, Angelina, is that through the cycle, the fund has performed well over numerous cycles, and you can see the performance of the fund.

Most importantly, it has protected investors' capital.

through the down markets and you can see here on the chart on the right hand side and that's really the testament as to how we invest, which is looking for strong businesses to invest in, held by great management teams and hopefully we buy them at a decent valuation.

And finally, my last words, I guess, is that we're looking at a somewhat uncertain situation or economic outlook at this moment, but certainly we're by no means negative or pessimistic.

We're entering into the next six to nine months with the attitude as we've always held, which is to select a company, a portfolio of companies that are durable, that are well managed,

understand what the risks are and overlay whatever today's events are with the profile of the company.

This really helps you to helps us to select the key ideas that populate our portfolio and we're certainly working towards building out strong businesses or owning strong businesses through the medium to long term through a selection of strong companies for the portfolio.

With that I'll hand it over to you for questions.

Thank you, Esty.

In the interest of time, we're going to ask you one question.

So, what is your approach to investing in difficult market conditions and what are some of the key lessons you have learned?

Sure.

Yeah, look, Angelina, it's always uncomfortable investing through difficult environments, but arguably these are the best times to invest in.

And when I think back, some of my experiences through the GFC,

the Asian front initial crisis, even COVID-19 for example, these are probably the best times to invest in when you're uncomfortable with the outlook and that's because investors typically throw the baby out of the bath water and it really introduces a number of companies to start to select which goes back to my final point which is when selecting portfolio companies or a company

I'm really looking for companies which are durable, strong business models that are really well managed and management here accounts for a lot in what I look for and certainly when they face risk, they certainly will be able to adapt and adjust to risk that are facing these companies.

So the companies which I talked to much earlier in our conversation suggested within Australian market, we're certainly not having a lack of ideas to sift through for medium to long term.

And that's pretty much what the key lesson is.

Investing in strong companies when times are uncomfortable, that's probably one of the best times to invest in

Thank you, ST Wong.

Good to see you.

Take care.