It has now been exactly two months since the S&P/ASX 200 Index (ASX: XJO) reached its record high on February 20.
How things have changed in the world since then. The spread of the coronavirus globally has shaken economies and sent countless countries into lockdown. This unsurprisingly led to share markets across the world being sold off.
While this is disappointing, one leading fund manager believes the selloff has created a buying opportunity for investors.
According to the latest Flinders Emerging Companies Fund update, it sees abundant opportunity for investors and has recently been adding shares to its portfolio.
Portfolio managers Andrew Mouchacca and Richard Macdougall explained: “The decline in the domestic equity market in the month from the peak to the recent base on March 23rd was savage and at times indiscriminate (especially in small caps).”
“During these events, liquidity becomes paramount and often, share price moves are random and any fundamental reasoning or value is ignored. We feel that while volatility remains elevated and great uncertainly still exists, some of the dust has settled and it is now possible to try and understand the forces at work and we are shaping an investment portfolio that is fit for the current times and provides excellent returns for the future.”
What has Flinders Emerging Companies Fund been buying?
The fund added foreign exchange services provider OFX Group Ltd (ASX: OFX) to its portfolio due to the increased level of activity in transactions as currency volatility increased in February and March.
It notes that the company has struggled to gain market share from the banks, but believes increased marketing and more awareness of cost-savings will support its growth.
Another company in the financial services industry that it has added is auto lender, Money3 Corporation Limited (ASX: MNY). It notes that the company has a long history of growth in this sector, has good systems, healthy margins, and an understanding of its customer base. The pandemic saw its shares crash 70% lower amid concerns over a sharp rise in unemployment and default rates. However, Flinders believes the JobSeeker initiative reduces that risk considerably.
Another addition was Pinnacle Investment Management Group Ltd (ASX: PNI). It was added early in the quarter and performed strongly before the market downturn. The portfolio managers believe its excellent suite of investment vehicles will support its future growth. It has added to its holding following a recent selloff.
Flinders added transport company Sealink Travel Group Ltd (ASX: SLK) back into its portfolio in March. This was on the back of its Government backed commuter revenues.
The portfolio managers explained: “The recent merger between Sealink and Transit Systems Group resulted in a large reduction of exposure to tourism and the company is now predominantly an operator of low risk, long term guaranteed Government contracts. Sure, there will be some loss of revenue from Captain Cook Cruises and Fraser Island but they are now much diminished as a percentage of the group and we still see it as a very undervalued stock.”
A fifth share added to the portfolio was agricultural supplies and services business Elders Ltd (ASX: ELD). Flinders notes that the sector is one of the few bright spots in the domestic economy. This is due to both recent drought breaking rains increasing demand for this season and agricultural output seeing increased demand.
The final addition the fund manager made was Wisr Ltd (ASX: WZR). It likes the unsecured lender due to its rapidly growing digital offering, solid funding capability, and falling borrowing costs. Combined, it feels these make it an attractive investment opportunity.
It notes: “The stock was hit exceptionally hard over February and March (as all consumer finance companies were) however, again, we believe that the JobKeeper program will also help Wisr continue to grow strongly in its market and help contain credit risk.”
I agree with Flinders Emerging Companies Fund that there is abundant opportunity for investors following the coronavirus crash.
I would suggest investors look for companies with strong balance sheets, solid growth potential, and limited direct impact from the pandemic.