Wilsons Advisory has this week launched its Australian Equity Focus Portfolio, an in-house effort to outperform the S&P/ASX 200 Index (ASX: XJO) over a rolling three to five-year period.
The Wilsons team said they're looking to invest "across the spectrum of sectors and styles, however, stock selection typically reflects a bias towards reasonably priced, high-quality businesses with sustainable growth, consistent with our investment philosophy''.
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Looking to beat the market with quality companies
That investment philosophy is based around five core principles, with the first being that earnings are the primary driver of shareholder returns.
The team is also looking for "high-quality businesses with strong competitive advantages, high returns on capital, and robust balance sheets, which tend to outperform over the long run''.
They will also be keeping an eye on the macroeconomic outlook, which "informs sector tilts and stock selection''.
The Wilsons team said regarding their approach:
Our portfolio construction process combines bottom-up fundamental analysis with top-down sector and commodity views. It is designed to ensure that stock and sector weightings directly reflect our level of conviction, with capital systematically allocated toward our highest-conviction ideas. For Industrials, position sizing is primarily driven by bottom-up stock conviction rankings, based on a rigorous assessment of business quality, valuation and momentum (with an emphasis on earnings). This is overlaid with top-down sector tilts where applicable, which can scale final position sizes up or down. For Resources, we adopt a top-down starting point, forming views on relative commodity attractiveness before assessing preferred exposures within each commodity based on company-specific fundamentals.
Mining looking strong
The Wilsons team said at the moment they are positive towards the resources sector for a number of reasons, including resilient global growth, a softer US dollar, government policy that is looking to onshore production, and structural demand tailwinds such as the energy transition.
They added:
Within the commodity complex, we are particularly positive towards base metals (copper, aluminium), gold, and critical minerals (rare earths), where we see favourable supply/demand dynamics and supportive medium-term pricing. We remain neutral on energy and modestly underweight iron ore, reflecting less attractive supply/demand dynamics.
The Wilsons portfolio is underweight on banks versus the ASX 200, albeit they are looking more favourably on the sector following the reporting season, and the portfolio has no exposure to retail and domestic cyclicals.
As the Wilsons team said:
As we have written about previously, the monetary policy backdrop has become increasingly challenging for companies exposed to domestic consumer spending, with the RBA having raised rates in February and markets fully pricing at least one further hike later this year. This environment presents risks to retailer earnings and valuations at a time that valuations are already relatively full – particularly for high-quality large cap exposures.
Now to the top 10 companies, and BHP Group Ltd (ASX: BHP) tops the list followed by Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), Goodman Group (ASX: GMG), ResMed Inc (ASX: RMD), Santos Ltd (ASX: STO), Evolution Mining Ltd (ASX: EVN), Brambles Ltd (ASX: BXB), and finally Woolworths Group Ltd (ASX: WOW).
