The fund manager Wilson Asset Management (WAM) has recently identified some S&P/ASX 200 Index (ASX: XJO) shares that it owns (or owned) in one of its main portfolios.
WAM operates several listed investment companies (LICs), including 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 12% per annum since its inception in May 2016. This compares to the S&P/ASX 200 Accumulation Index (ASX: XAOA)'s average return of 7.4% over the same period.
Below are two of the ASX 200 blue-chip shares in the WAM Leaders portfolio the fund manager is positive about.
Rio Tinto Ltd (ASX: RIO)
Rio Tinto is one of the largest ASX mining shares, with a portfolio of different commodities including iron ore, copper and aluminium, and China is the largest export market for the company.
The fund manager pointed out that the Chinese economy "started showing signs of recovery supported by the Chinese government announcing monetary stimulus measures for property and construction sectors during the month, which helped fuel steel demand."
WAM noted that Rio Tinto recently reported its quarterly earnings in October, where shipments across commodities "showed strength on steady demand" from China and its ramped-up production. The investment team said about the ASX 200 share:
Rio Tinto remains a core holding of the WAM Leaders investment portfolio, as we see continued improvement in sentiment towards China as a key catalyst. Valuations are attractive with the implied price of iron ore at the current share price indicating a significant discount to the current spot price and mid-cycle commodity price.
Dexus (ASX: DXS)
WAM describes Dexus as an Australasian fully integrated real asset group.
The fund manager pointed out that market sentiment towards the broader real estate investment (REIT) sector has been "subdued" recently, driven by high long-dated bond yields.
One of the problems is that office assets faced specific headwinds because of concerns about a structural decline in office attendance after the COVID-19 pandemic.
Dexus recently gave its quarterly update where it reaffirmed its full-year guidance as operations remained "as expected despite the challenging environment" and the company has been proactive on divestments and developments. The business also announced that CEO Darren Steinberg is leaving the business.
The property business highlighted that it would be shifting its focus to high-quality development projects, and expanding the funds management and industrial businesses which will "diversify its exposures", according to WAM.
Why does WAM like the ASX 200 share? The team said:
We remain positive on the outlook of Dexus as we see it trading at a significant discount to its asset backing, despite the demand for quality assets remaining strong. Office supply is not expected to increase in a meaningful way in Sydney in the medium-term, which will likely lead to reduced incentives, effective rental growth and increased retention, which we believe Dexus will benefit from as demand for quality remains resilient.
We also see value in the company's strong balance sheet, with gearing well below its target range, and its profitable and high growth funds management business currently underappreciated by the market.
