Technology shares are all the rage these days with the rise of software as a service.
This is for good reason as tech companies typically have scalable business models with recurring incomes and earn high margins on their revenues. The tech sector in return has not disappointed and companies such as WiseTech Global Ltd (ASX: WTC), Afterpay Touch Group Ltd (ASX: APT), Appen Limited (ASX: APX) and Xero Limited (ASX: XRO) have all rewarded shareholders handsomely over the last few years.
It is then perhaps surprising that two funds focusing on Australian equities managed by top fund managers Allan Gray and Lazard do not have a single tech company in their top five holdings.
At the end of September 2018, Allan Gray's Australian Equities fund had the following top fund holdings:
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Woodside Petroleum Limited (ASX: WPL)
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Newcrest Mining Limited (ASX: NCM)
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Origin Energy Ltd (ASX: ORG)
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Alumina Limited (ASX: AWC)
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QBE Insurance Group Ltd (ASX: QBE)
Lazard, on the other hand, had the following top fund holdings at the end of September 2018:
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Woodside Petroleum Limited (ASX: WPL)
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QBE Insurance Group Ltd (ASX: QBE)
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Rio Tinto Limited Fully Paid Ord. Shrs (ASX: RIO)
- Alumina Limited (ASX: AWC)
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AMP Limited (ASX: AMP)
Energy and resources are a strong recurring theme in these portfolios with Woodside the top holding in both funds. I think this reflects the confidence these fund managers have in where we are in the market cycle as well as the future of commodity prices.
Foolish Takeaway
My main takeaway from this is the importance of staying within your circle of competence. Commodities are highly cyclical and it would make sense for investment banks and funds who have large research teams to conduct more detailed research on the underlying drivers of commodity prices and monitor them. That way, they can make bets on companies such as Woodside if they expect oil prices to rise and trim their positions if they expect the opposite.
For my own portfolio, I'm going to stick to disruptive innovators such as these three revolutionary companies.
