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, Perennial Value Management portfolio management director Stephen Bruce explains why an Australian investment bank is still the one stock he'd want to hold onto for dear life.
The ASX share for a comfortable night's sleep
The Motley Fool: If the market closed tomorrow for 4 years, which stock would you want to hold?
Stephen Bruce: I wouldn't change my answer from last time. I still think if you want to pick a stock which will adapt to whatever the environment is presenting, I think Macquarie Group Ltd (ASX: MQG) have demonstrated that they're an organisation that — despite the fact that they've grown very large — they've still managed to maintain that flexibility and nimbleness and adaptability to see where opportunities are and take them. And similarly, to see when things are on the decline and to move out of things that have seen their best days.
So long as they maintain that ability, which I think is pretty well ingrained into the culture of management there, I think you can rely on Macquarie to be doing the right thing in whatever the circumstances are.
If we think about the outlook now and what we think it might be like in 4 years, if you continue on with the green and energy transition theme, Macquarie [has] largely invented it. They were the leaders in infrastructure as pioneers of infrastructure-as-an-asset class.
And now that's obviously becoming a very crowded space, but they've proactively moved down the value chain into greenfield developments and actually creating the assets rather than just buying them. They have this early mover position in greenfield renewable projects et cetera and I think that'll only get stronger for them.
MF: The share price has gone up a lot since we last spoke. Do you still think it's good value?
SB: It's nowhere near the value it was when it was $140, but you can make an argument that if we look at it now, it's probably operating in the best conditions you can imagine really across all of its businesses.
The banking's buoyant, so the investment banking backdrop is really, really strong. People are fighting for infrastructure assets so prices are really, really high. There's heaps of money flowing into the funds they manage. The performance bids will be good.
With asset prices being really high, their principal realisation gains will be really strong. And then with the commodities prices being way high and being volatile in general, that's really good for their trading businesses, which is becoming an increasingly large part of their operations. So that should be firing as well as people do more hedging, et cetera.
They're in a really good patch and probably, as I said, whatever transpires they'll adapt to it. The [current] valuation's probably reasonable, but the earnings I think could actually surprise on the upside and make it all look better.
