ASX 200 shares to shift earnings growth up a gear in FY22 – Expert

This fund manager is expecting strong earnings growth from ASX 200 shares in FY22…

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The last financial year delivered the best returns to Australian share market investors since FY07. However, one fund manager is expecting the good times to keep on rolling in this financial year, led by a surge in earnings from S&P/ASX 200 Index (ASX: XJO) shares.

Since the beginning of the new financial year, the ASX 200 has climbed a further 3.1%. This gain has largely been contributed by the materials and industrials sectors. Further growth could be on the cards if the team at Prime Value Asset Management is on the money.

Will ASX 200 shares deliver accelerated profit growth?

In its June update, Prime Value shared with its Opportunities Fund investors what it expects in the latest financial year. The fund aims to invest in 20 to 30 of the best opportunities within the ASX, irrespective of market capitalisation.

While the fund is open to companies of all sizes, its update highlights ASX 200 shares as potential FY22 winners.  

Prime Value’s Opportunities Fund delivered a 27.7% total return in FY21. The best performers within the fund included City Chic Collective Ltd (ASX: CCX), AUB Group Ltd (ASX: AUB), and Pinnacle Investment Management Group Ltd (ASX: PNI). On the other hand, its worst performers during the period included Collins Food Ltd (ASX: CKF), National Australia Bank Ltd. (ASX: NAB), and CSL Limited (ASX: CSL).

Heading into the new financial year, Prime Value resonates with Emma Fisher’s take on the importance of pricing power during inflationary environments. Yet, the fund isn’t trying to predict inflationary winners. Instead, it is eyeing off the ASX 200 shares likely to deliver earnings growth.

In its update, the Melbourne-based Australian investment manager said:

Overall, we expect FY22 to look quite different to FY21, as the drivers to performance will differ. As a base case, we expect the ongoing global vaccine rollout, significant monetary and fiscal stimulus to result in an acceleration in economic growth and corporate earnings… For example, we increased our exposure to the materials sector as a number of companies have been increasing their production and planning for expansion in commodities with strong supportive fundamentals. These investments include Mineral Resources and OzMinerals.

We have already witnessed Rio Tinto Limited (ASX: RIO) deliver exceptional earnings growth of 156%. As a result, the mining giant declared a dividend payout worth US$9.1 billion.

Funds’ top holdings

Reassuringly for investors, Prime Value practices what it preaches. The fund’s top 5 shares are all ASX 200 constituents based on its June update. Specifically, this includes Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), CSL Limited (ASX: CSL), National Australia Bank Ltd. (ASX: NAB), and Macquarie Group Ltd (ASX: MQG).

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Motley Fool contributor Mitchell Lawler owns shares of Commonwealth Bank of Australia and Macquarie Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Austbrokers Holdings Limited and Collins Foods Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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