There are some S&P/ASX 200 Index (ASX: XJO) shares this fund manager owns which it thinks can still do well in the current investment environment.
The fund manager in question is Perpetual Limited (ASX: PPT) and the fund is focused on Australian shares, particularly ASX industrial and resource shares. This fund aims to outperform the S&P/ASX 300 Accumulation Index over three-year periods.
At 30 June 2022, the net returns of the fund had outperformed the index by an average of 2.3% per annum over the previous three years.
The fund manager's view is that "markets are poised for further rotation to a more value-orientated investment environment as COVID-19 disruptions, waning stimulus and war combine keep consumer price inflation at high levels".
Perpetual's strategy
With that outlook, Perpetual has a view on what's going to happen next and what this will mean for certain ASX shares and how to invest. Perpetual said:
In our view, rising bond yields will eventually lead overpriced growth stocks into a more sustained and overdue correction, challenging investors with large growth exposures. We think, in the years ahead, markets will need to become accustomed to more inflation than previously experienced. This distinct shift in the macro backdrop is already playing out across asset classes. In these conditions, our focus on value style investing, buying quality companies with strong balance sheets trading at reasonable valuations, should continue to do well and offer attractive opportunities for investors.
So which ASX shares does it own?
At the end of June 2022, Perpetual had a few key positions in businesses with big weightings in the portfolio.
Some of those big ASX share positions were: Santos Ltd (ASX: STO) at 5.9% of the portfolio, Insurance Australia Group Ltd (ASX: IAG) at 5.8% of the portfolio, and Ramsay Health Care Limited (ASX: RHC) at 4.3% of the portfolio.
Santos is benefiting from the higher energy prices amid the Russian invasion of Ukraine. Perpetual said the spike in prices has contributed to near-term inflation expectations.
Ramsay has been a recent performer after receiving a conditional, non-binding and indicative proposal from a KKR-led consortium to buy the business. Ramsay shareholders will get $88 cash per share, less any dividends paid. The Ramsay board has given the consortium due diligence materials on a non-exclusive basis.
On IAG, Perpetual noted that the insurer has received regulatory approval for the sale of AmGeneral, a Malaysian business in which it holds a 49% stake. The sale proceeds will be around $340 million, with an expected net loss after tax of AU$90 million. However, "it will improve its regulatory capital position by AU$150 million at completion".
The ASX share recently gave a profit update for FY22 and guidance for FY23.
IAG said its FY23 guidance reflects "strong underlying business momentum".
IAG expects gross written premium growth to be "mid-to-high single digit growth". This will be "primarily rate driven to cover claims inflation, higher reinsurance costs and an increased natural peril allowance".
The reported insurance margin is likely to be higher than FY22. In FY23 the company expects this to be between 14% and 16%.
