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Savvy ways to invest $10,000 right now

Emma Rapaport and Lex Hall  |  23 Nov 2018Text size  Decrease  Increase  |  
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The past financial quarter has been a rocky time for Australian investors as markets navigate volatile shoals.

October posted the sharpest one-month declines for global equities since 2012 amid gnawing concerns over the durability of the economic cycle and escalating trade tensions between the US and China, not to mention Brexit and associated ructions in Europe. And Australian markets were caught in the wash. Weakness across the big four banks, in particular, hurt portfolios.

But it's not all gloom and doom. A challenging period creates buying opportunities for investors who dare to embrace the rout.

To help you generate some ideas about where to invest $10,000 right now, we've tapped a panel of investment professionals for their insights. Their tips cover a range of sectors from mining services, to European financials and unlisted commercial property.

In no particular order, we've called on John Murray from Perennial Value, Franklin Templeton Investment Australia’s Peter Wilmshurst, and Hamish Wehl from Cromwell Property Group.

The views reflected here do not reflect those of the Morningstar research or investment management teams. Before exploring their suggestions, it's wise to do your own research, consider your portfolio and consult a financial adviser.

Value stocks making a comeback

John Murray – Perennial Value
Founder and managing director of active management firm Perennial Value. Murray oversees a suite of seven equities products.

"After many years of tailwinds for growth and momentum on the back of easy money, we believe 2018 will represent a turning point back in favour of value. I would be investing $10,000 at the value end of the Australian stock market, even more so following the recent market sell-off. What we have seen in this sell-off is that momentum/growth stocks have moved from very expensive to expensive and value stocks have moved from good value to even better value now.

"One sector where we see considerable opportunities to buy good businesses at sensible prices and where they should benefit from a favourable industry thematic, lies within the mining services sector.

Mining services

"In terms of the industry thematic, for any resources company, as each day of production passes, they own a declining resource. Ultimately companies must spend more money in order to find new discoveries to replenish this declining resource. Mining capital expenditure has declined some 60 per cent since its peak in 2012 as the resources sector has focused on balance sheet repair, asset optimisation and returning capital to shareholders. We are beginning to see this trend reverse and resource companies have now begun turning their attention to new projects to either maintain or expand production as their existing asset base begins to decline in production and/or grade. With cash generation and balance sheets in rude health, in the iron ore industry, for example, we have seen the likes of Rio Tinto (Koodaideri), BHP(Southern Flank) and Fortescue(Eliwana) all committing significant capital expenditure to large-scale projects due to begin development in 2019/2020.

"In turn, mining services companies will benefit from this increased spend. Perennial Value’s key holdings across the market cap spectrum include Ausdrill, ALS, Imdex, Monadelphous, Seven Group and Swick. Investing in this sector is not without risk, hence we have selected several companies to diversify away company-specific risk. Company-specific risk is also reduced in the sense that these exposures are typically part of overall stock numbers of about 60 across each of our micro-, small- and large-cap portfolios. Thus, we clearly see many other good value stock opportunities beyond mining services."

Look outside the US for opportunities

Peter Wilmshurst – Franklin Templeton Australia
Portfolio Manager for the Templeton Global Growth Fund. Wilmshurst has research responsibility for banks in Europe, Middle-East and Africa, and fixed-line telecommunications companies outside the Americas

"We are at a point in the market cycle where many global equities, and particularly those outside the US, look attractive relative to Aussie stocks. For Australian investors looking to grow and diversify their wealth outside of domestic stocks and property, there are compelling value opportunities to be found internationally. We continue to see corporate earnings growing across all the major regions and many industries. Tightening US monetary policy conditions may represent a headwind for a maturing US bull market and investors need to be less US-centric in their approach.

"In the US, corporate margins and earnings per share are well above the levels reached in the 2007 cyclical peak. Company valuations in the US should reflect tightening monetary policy and a more mature profit cycle but are instead at a premium to most other global markets. The US is the biggest equity market, but there's a wide world out there. And when you go back and take the period from June 2009 to basically now - so nine years - the US market is up 200 per cent and the rest of the world has appreciated less than 50 per cent in US dollar terms.

Euro bank notes

"European equities are experiencing their most extreme and sustained underperformance against the US in at least half a century, and the region is trading near its cheapest levels on record relative to US shares. European financials is an area that we think is among the most attractive in global markets right now. It’s a sector where you can still buy shares in banks which have fixed their capital position, boosted their liquidity position, are starting to experience loan growth, while bringing costs down and generating attractive returns and paying more out in the form of dividends to investors."

Unlisted commercial property is an attractive diversifier

Hamish Wehl – Cromwell Property Group
Wehl is head of retail funds management at Cromwell Property Group, and responsible for overseeing Cromwell’s unlisted retail funds management business

"Australians have had a long love affair with residential property. However, commercial property is an alternative option that offers consistent returns via regular income and the opportunity for capital growth. Unlisted property is also attractive, given performance is not directly influenced by share market activity – rather periodic property valuations and rental income flow.

Commercial property city

 

"Unlisted property funds usually comprise one or multiple commercial, retail, or industrial properties, which investors gain direct exposure to, without needing to outlay the capital to buy the whole asset themselves. Investors can choose either an open-ended fund or a close-ended syndicate.

"Before investing, there are several factors to consider, including the quality of the assets held in the fund (location and tenants), the projected yield (income) and risk exposure, gearing, costs and fees, and the manager’s experience and reputation."

 

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are reporters with Morningstar Australia.

This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria. 

© 2019 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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