There are few people with a more consistent track record each year than Wilson Asset Management. A big part of that performance is Chief Investment Officer Chris Stott.
He is one of the main individuals responsible for generating strong performance for the WAM listed investment companies (LICs) including the WAM Microcap Limited (ASX: WMI) portfolio, which delivered a 28.9% return before fees in FY18, and the WAM Research Limited (ASX: WAX) portfolio which delivered a return of 14.5% before fees in FY18.
Last year Chris Stott made a number of predictions for Livewire about what would unfold in FY18 including a peak for house prices, retail shares to struggle, official rates staying on hold and synchronised global economic strength.
Here are some of his predictions for FY19:
Global economic growth to continue
Mr Stott believes that President Trump's cuts, along with increasing interest rates, will boost US growth in the short-term. Although he said that conditions are the best since the GFC, the US is currently in the mid-to-late part of the cycle.
Free-to-air TV will continue its run
WAM has been banging the drum for Nine Entertainment Co Holdings Ltd (ASX: NEC) and Seven West Media Ltd (ASX: SWM) for a while. Those two shares have been strong performers since reporting season five months ago. He expects continued performance as advertising agencies are finding it hard to measure marketing returns on the digital platform, so are preferencing free-to-air TV for now.
Rebounding retail sector
Amazon has been a looming shadow on many Aussie retail shares. However, its initial arrival isn't as bad as feared, yet the share prices of retailers are still down. Mr Stott believes some consumer discretionary shares may outperform due to their low earnings multiples and the Aussie consumer being in good health.
House prices won't crash
Despite some people fearing the worst for the housing market, Mr Stott thinks this gradual fall will be the worst of it. He believes population growth and an undersupply of homes will mean that house prices will be essentially flat over the next three years.
Banks will outperform
The Royal Commission has been a real drag on the share prices of Commonwealth Bank of Australia (ASX: CBA) and others in 2018. However, the banks are now trading on the cheapest price to book ratio in many years. When you add in dividends the banks could outperform the market according to Mr Stott.
Price/earnings ratios to contract
Many of the ASX's top growth shares have grown profit nicely, but their earnings multiples have gone up much more. The rising global interest rate could have a negative impact on many of these shares. He named Altium Limited (ASX: ALU) and WiseTech Global Ltd (ASX: WTC) as two that could suffer.
Foolish takeaway
I would agree with most of those predictions, obviously p/e ratio contraction could hurt quite a few shares, so that could be something to be wary of.
However, if I had to pick one to disagree with it would be house prices. I don't think prices will drop 50% in the next 12 months, but I'd be surprised if prices weren't down at least around 10% in three years' time due to rising interest rates and a large amount of loans turning from interest only into capital & interest repayments.
