Investor Mutual AUS Concentrated Share (ASX: IMLC) remains a sound choice for those seeking large-cap, Australian equity exposure, thanks to its meticulous research engine and the positive influence of its investment team.

This strategy benefits from the experienced stewardship of Hugh Giddy, its manager since its 2010 inception. The approach is further supported by the depth of talent within the broader IML team, whose extensive understanding of regulatory and structural dynamics across industries provides a distinct edge in surfacing overlooked opportunities.

IML’s time-honored quality-value philosophy relies on proven financial theory, and its process is extremely well-defined. While the firm adopts a cautious pace in decision-making—occasionally resulting in alpha leakage—this aligns with its conviction-driven approach, prioritizing depth of research and durability over speed. The research engine is high-powered, incorporating extensive stakeholder engagement—at times with nonstandard parties—and unique field-based analysis, rather than relying solely on consensus data.

This strategy serves as a best-ideas counterpart to the more diversified Natixis Investors Mutual Australian, typically reflecting a nearly 100% Common Holdings Score. By design, it is more concentrated and benchmark-unaware, with Giddy prepared to take more pronounced underweight positions within sectors. A notable example has been instances of zero weightings in banks and resources over the medium term.

The conservative style can lag in exuberant, liquidity-driven markets, as seen with industrials—a preferred hunting ground for quality managers like IML—trading well above historical norms for much of the period since 2019. In such conditions, momentum and risk-taking are rewarded, while valuation discipline falls behind. Conversely, when valuations normalize, as in 2022, the strategy tends to outperform, underscoring its consistency in prioritizing fundamentals over inflated multiples.

This strategy attracts because of its investment discipline and comprehensive research effort, making it a viable choice with the potential to deliver alpha going forward.

Methodical and research-driven

IML’s bottom-up investment process begins by applying a combination of quality and liquidity filters to S&P/ASX 300 constituents each quarter, eliminating speculative companies with excessive debt or negative earnings. Research then focuses on companies with competitive advantages and capable management.

The team conducts Porter industry analysis—a framework that examines competitive forces such as supplier power, buyer power, threat of new entrants, threat of substitutes, and industry rivalry—and evaluates financial and management strength, supported by a rigorous company meeting schedule. Findings feed into IML’s proprietary quality scoring system, where environmental, social, and governance risk is an equal input.

Valuation discipline is central, with companies assessed using metrics tailored to the industry. The process is inherently conservative, emphasizing stocks with predictable, recurring earnings streams over the medium term. Portfolio positions are determined by price targets and the team’s conviction in future earnings. IML demonstrates methodical risk management through top-down and portfolio-level tools to maintain consistent style and factor exposures. Risk is further managed via diversified buckets—turnaround, value, high growth, growth, and stalwarts—supported by soft internal guardrails, including a targeted 10% overweighting in stalwarts.

Investments are made with a long-term perspective, resulting in low portfolio turnover: between 6% and 20% over the past five calendar years. This equates to an average holding period of around five years. The portfolio typically underweights high-volatility cyclicals and avoids sectors such as listed property and infrastructure, where returns depend less on underlying business fundamentals.

The team’s ability to uncover overlooked value often leads to some smaller-cap holdings. As a result, the portfolio’s average market cap is generally smaller than the S&P/ASX 200 Index Morningstar Category benchmark, though its primary focus is on large caps. IML may allow cash to build when attractive opportunities are scarce—averaging 10% over the medium term. Over time, the portfolio’s beta—or market sensitivity—has been relatively low, reflecting IML’s preference for certainty and stability. On average over the past five years, the most material sector skews versus the category index have been an overweighting in communication services of around 15% and an underweighting in materials and financials, ranging from 12.5% to 20%. Recently, these positions have moderated, with a narrowing of the long-standing communication services overweighting and an increase in the healthcare overweighting. The strategy’s contrarian and benchmark-unaware approach typically results in an active share of around 85%.

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