Respected fund manager Wilson Asset Management (WAM) has recently identified two ASX shares that it owns in its portfolio.
WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).
There's also one called WAM Leaders Ltd (ASX: WLE) which looks at the larger businesses on the ASX.
WAM says WAM Leaders actively invests in the highest quality Australian companies.
The WAM Leaders portfolio has delivered gross returns (that's before fees, expenses and taxes) of 12.7% per annum since inception in May 2016, which is superior to the S&P/ASX 200 Accumulation Index average return of 8.5%.
These are the two ASX shares that WAM outlined in its most recent monthly update and were one of WAM Leaders' biggest 20 positions:
National Australia Bank Ltd (ASX: NAB)
WAM Leaders said that November marked a turning point on sentiment for the banking sector, driven by falling mortgage deferrals, the US presidential election result and several coronavirus vaccine developments.
The LIC also pointed out a positive from NAB's FY20 result in early November compared to the other major banks was that the net interest margin (NIM) only declined by three basis points, whereas the other big major banks showed double digit NIM declines.
NAB also reported that its underlying profit in FY20 only fell by 12% to $8.2 billion. However, cash earnings dropped 36.6% to $3.7 billion and statutory profit fell 46.7% to $2.56 billion. Statutory earnings per share (EPS) declined by 51% to 80.5 cents.
FY20 credit charges for the ASX share included $1.86 billion of provisions to reflect the potential COVID-19 impacts, which included $388 million for targeted sectors experiencing elevated levels of risk including aviation, tourism, hospitality and entertainment, retail trade and commercial property.
The decline in profit caused the bank to reduce its full year dividend by 64% to 60 cents per share.
The fundie said that with a new management team driving a turnaround strategy, conservative provisions and a strong balance sheet, the investment team is confident on the outlook for NAB and expect the positive recovery trends to continue into 2021.
Santos Ltd (ASX: STO)
In November, WAM Leaders positioned the portfolio to take advantage of the rotation towards base metals and oil companies.
Santos is headquartered in Adelaide and it's Australia's second largest oil and gas producer.
The outperformance of the Santos share price during November was driven by oil prices reaching an eight month high in late November amid a weakening US dollar, a surprise decline in US crude supplies and coronavirus vaccine news.
On 1 December, Santos upgraded its 2020 production guidance to 87 to 89 million barrels of oil, and WAM Leaders believes it is well positioned to benefit from the economic recovery going forward. The new guidance represents 15% to 18% production growth for the year and it's growth of more than 50% since 2015.
The ASX share also said that it's on track to deliver production cost reductions announced in March in response to the COVID-19 pandemic, which sees 2020 guidance lowered to $8 to $8.50 per barrel of oil.
Santos CEO and managing director Kevin Gallagher said: "Our strategy has been to establish a disciplined low-cost operating model that delivers strong free cash flows through the oil price cycle. Our 2020 forecast free cash flow breakeven oil price is less than US$25 per barrel before hedging and around US$20 per barrel after hedging."
Santos has been a core position in WAM Leaders due to management's cost discipline and focus on profitable projects.
