Selling Strength, Buying Quality: Equity Discipline in a Higher-for-Longer World

As we reflect on the June quarter, we wanted to share a recap of the themes and decisions our investment team has been focused on, captured in our latest quarterly advisor webinar, Selling Strength, Buying Quality: Equity Discipline in a Higher-for-Longer World. Below, you will find a summary of the key discussion points along with the full replay, which we hope proves useful in your conversations with clients.

Global equities delivered strongly over the twelve months to June, with the MSCI up 12.6% on the back of remarkably broad earnings growth, while the ASX rose 6.5%, led largely by resources. Inflation is proving sticky, with the RBA lifting the cash rate to 4.35% before pausing in June, and the US conversation flipping from “when will the Fed cut?” to “does the Fed need to go higher?”. Against that backdrop, the question our team kept returning to was, as always: is the price sensible relative to the quality and the long-term return on offer?

That question cut both ways this quarter. Where prices had run well ahead of valuations, we sold. We exited the chip sector globally, including TSMC, ASML and Celestica, after exceptional runs left valuations stretched for what remains a cyclical business, and trimmed Wells Fargo after several years of strong re-rating across our bank holdings. Where quality was being given away, we bought. The market’s fear of AI disruption has, in our view, badly mispriced a number of genuinely high-quality software franchises, and we have been happy to take the other side, adding SAP and Siemens globally alongside additions to Microsoft and Amazon. In the domestic portfolio, our financials weighting lifted to nineteen percent, a notable change after years of running a large underweight given our limited exposure to the mainline banks. Driving that lift were two insurance brokers with strong operating models and attractive valuations: Steadfast (now the subject of a takeover bid) and AUB. Elsewhere, we took profits in Dicker Data after strong performance, exited Sonic Healthcare, where operating conditions had been difficult for some time, and exited Whitehaven and Amcor. We also continued to add to WiseTech at lower price levels. While controversy has plagued the company, the core software is deeply embedded in global logistics and plays a critical role.

The session also featured closer looks at two holdings. Max Herron-Vellacott walked through James Hardie: why a poorly received acquisition and a soft US housing market tested our patience, and why the strength of the core fibre cement business gave us the conviction to hold through the noise, a decision that has been largely rewarded as the shares have recovered most of the lost ground. Franklin Djohan introduced SAP, our newest global addition: a mission-critical enterprise software franchise with decades-long customer relationships, cloud revenue compounding at 23% per annum, and a valuation that finally fits our philosophy.

The higher-for-longer backdrop also carries a silver lining beyond equities. With Australian and US ten-year government bonds yielding close to five percent, high-quality fixed income is once again a genuine source of income rather than just a defensive holding. For clients with term deposits maturing, today’s yields offer the chance to lock in income for years rather than months, and investment-grade credit can add a further one to two percent of spread. As Neil noted, Alphabet’s record corporate bond issue in Australia is likely the first of many, which should bring welcome diversification to the local credit market.

The webinar offers a candid look at how we invest when markets are strong rather than fearful, why we would rather be paid to own quality than chase what is expensive, and why discipline, not prediction, remains the foundation of our approach. We encourage you to watch the full recording to hear our team explain it in their own words.

Full Video