The fund manager Wilson Asset Management (WAM) has recently identified its preferred ASX iron ore pick: BHP Group Ltd (ASX: BHP) shares.
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. These are 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 15% per annum since its inception in May 2016. This compares to the S&P/ASX 200 Accumulation Index (ASX: XAOA) average return of 8.1% over the same time.
WAM outlined why it likes BHP shares at the moment.
Rising iron ore price
A key factor influencing BHP is how the prices of commodities perform. The iron ore ASX share rose in November amid a 25% increase in the iron ore price over the month.
WAM attributed the higher valuation of the business to "positive news from China as well as the weakening US dollar".
The fund manager noted that Chinese authorities had changed their tactic to implement quick lockdowns when cases surge and "relax restrictions rapidly when spread of the virus slows".
It was also pointed out that China is accelerating the rollout of vaccinations for the elderly in the coming months, before "further reopening the economy early next year".
Wilson Asset Management also noted that the Chinese government announced 1.88 trillion yuan of funding for property developers to be used by homebuilders to complete and deliver pre-sold housing units.
In positive comments about China, WAM said:
Overall, the Chinese economy appears to have turned a corner and is now stabilising which we expect will continue to support iron ore prices over the coming months.
Why BHP shares?
While other ASX iron ore shares have also risen in recent weeks, such as Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Ltd (ASX: RIO), WAM's investment team said there were a few key reasons why BHP is the pick of the ASX iron ore shares.
Firstly, WAM likes the "cost" performance of the business. The scale of the company, and technology and systems it utilises, gives it a strong ability to achieve low operating costs.
Next, the fund manager pointed to its copper exposure. BHP is looking to grow its copper operations with the proposed proposed acquisition of OZ Minerals Limited (ASX: OZL).
The investment team believes that BHP has a "strong" balance sheet and also likes its growth outlook.
BHP shares are one of the biggest positions in the WAM Leaders portfolio.
