The fund manager Wilson Asset Management (WAM) has recently identified some S&P/ASX 200 Index (ASX: XJO) blue-chip shares that it owns (or owned) in one of its main portfolios.
WAM operates several listed investment companies (LICs). Two of these LICs are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).
There's also one called WAM Leaders Ltd (ASX: WLE) that looks at the larger businesses on the ASX, often referred to as ASX blue-chip shares.
WAM says WAM Leaders actively invests in the highest quality Australian companies. But does WAM have a good reputation for picking stocks?
The WAM Leaders portfolio has delivered gross returns (before fees, expenses, and taxes) of 14% per annum since its inception in May 2016. This compares to the S&P/ASX 200 Accumulation Index average return of 7.4%.
These are the ASX 200 blue-chip shares that WAM outlines in its recent monthly update.
Telstra Corporation Ltd (ASX: TLS)
The fund manager described Telstra as Australia's leading telecommunications service provider to consumers, businesses and government.
Telstra has been in the WAM Leaders portfolio for a while because of the defensive nature of its existing earnings, an improvement in the growth of its subscribers, mobile price increases and a recovery of roaming revenue. The fund manager called Telstra a "compelling investment" in the current market.
WAM also pointed to the recent landmark network sharing agreement between Telstra and TPG Telecom Ltd (ASX: TPG) with payments to Telstra of over $1.6 billion over the next decade. The fund manager views that deal as a further positive indicator for industry rationality and returns for the ASX 200 blue-chip share.
Lendlease Group (ASX: LLC)
The fund manager described Lendlease as a global real estate business with development, construction and investment operations.
WAM decided to add to its Lendlease holdings "opportunistically" after recent declines of the Lendlease share price.
The view of the investment team is that the sell-off of Lendlease shares has been "overdone" and noted it was trading below the level of the COVID-19 crash during March 2020.
The ASX real estate sector has been hit hard over the last six months. WAM said this was unsurprising considering the impact of bond yields on asset value and the "cyclical nature of development pipelines and office and retail rents".
But, WAM thinks that the underlying value of Lendlease is higher than what the business is trading at. Why? This view is due to the company "being 90% hedged to interest rate increases, its continued execution of its restructure program and its robust growth profile over the coming years, targeting $8 billion in annual production by FY24."
However, the fund manager did note there are risks with this ASX 200 blue-chip share. The margin profile, with elevated construction costs, is one to watch.
But, WAM believes that the company's "dominant market position will stand the company in good stead compared against its smaller peers and risks associated with the company's margin profile are already priced into current expectations."
