Afterpay’s done, so here’s the BNPL player we’re backing: expert

Ask A Fund Manager: Shaw and Partners’ Adam Dawes picks the buy now, pay later ASX share that he’d buy now and the stock he would never touch

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Adam Dawes of Shaw and Partners

Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Shaw and Partners senior investment advisor Adam Dawes tells us 2 themes that are popular with his clients, and the valuable lesson he learnt from a mining stock.

Investment style

The Motley Fool: How would you describe what you do?

Adam Dawes: I advise clients on direct equity portfolios. That’s institutional, professional, or retail clients. We’ve got the whole gamut of clients. We also help companies raise money as well. 

ASX shares with the biggest convictions

MF: What are the two most popular holdings among your clients?

AD: We’ll talk 2 themes…

The first theme has been technology, and more consistently the buy now, pay later space. That is definitely one of those ones where clients are gravitated to. 

I think Afterpay Ltd (ASX: APT) has done a fantastic job for our business of stockbroking. Because a lot of clients buy or they want to. ‘How do I get onto this kind of thing?’ — those headlines have done wonders for stockbroking as a business. 

Our preferred play in that space is Zip Co Ltd (ASX: Z1P).

We see all of the buy now, pay laters at least once every 3 to 6 months and talk about their sectors. And we’re looking to put a couple of other unlisted buy now, pay laters, a special one called Bizpay. We’re looking to list that early next year as well. 

So there’s lots still to go in the buy now, pay later space. I don’t think it’s dead by any stretch of the imagination. 

In fact, the deal with Afterpay and Square Inc (NYSE: SQ) has really highlighted the ability for buy now, pay later [businesses] to continue to grow. 

The second one is the most popular… the resource space. There’s still a little bit more to go in that cycle that we’ve always talked about. Certainly, I’ve been really very pleasantly surprised about the dividends that we’ve seen from the resource space. 

Now, those dividends won’t last, and it is certainly a cycle — you never buy a resource stock for dividends. But certainly, those dividends have been absolutely outstanding and definitely helping us keep clients happy. That income that they’re not getting from the term deposits or their cash. 

Looking back

MF: Is there a move that you regret from the past? For example, a missed opportunity or buying a stock at the wrong timing or price.

AD: If I had my time over, I think understanding the investments before we invest in them. This is an older one — so a bit of a history lesson for everybody — but a business called Intrepid Mines. IAU was the stock code.

Intrepid Mines had found a gold porphyry mine or a gold porphyry deposit in Indonesia. And basically, we were on this thing very, very early and we got involved [at] 30 cents.

It went to $2. We basically then topped up again, after we spoke to the company. 

Topped up again at $2 and then the Indonesian government came along and took the mining licence away from them because it was such a massive deposit. And we had basically radio silence for 3 months from the company. Had no idea what was going on. 

Then all of a sudden we found out and obviously the share price of $2, went down to 5 cents and we were left holding the bag for a lot of clients. 

A lot of losses, or the profit that we didn’t take, were due to that political risk. The geopolitical risk when you’re investing in a company.

So understanding those risks and potentially then not getting involved in countries that you don’t understand or not getting involved in businesses that are not in a safe jurisdiction is one of my biggest lessons or regrets. 

Not looking at it sooner and not taking action when you get that gut feeling that something’s not right. You’re like, ‘No, no, no. I believe management. No, no, it’s okay.’ You get that gut feeling and that can only come with time — understanding of markets and how things work. 

So that’s my biggest regret — investing in things that, especially, [when] you don’t understand the natural landscape. Like Oil Search Ltd (ASX: OSH) in Papua New Guinea… We don’t understand the government there, hence I’ve never invested.

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Motley Fool contributor Tony Yoo owns shares of AFTERPAY T FPO and Square. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Square, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. 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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