Contrary to popular sentiment, Tribeca Investment Partners’ Jun Bei Liu believes current market conditions are offering a fantastic opportunity for long-term investors to build their portfolios amid short-term price volatility.
Speaking at the 2023 Morningstar Investment Conference for Individual Investors in Sydney, the portfolio manager said the sheer number of quantitative and passive funds in the Australian market allow active investors to make the most of market falls.
“To be quite frank, the more the market falls, the more excited I get. I’m an active investor. I see opportunities, particularly in Australia [where] you’ve got a basket of stocks you know for a very long time and you identify quality, growth, or even value that represents a significant discount to where it’s supposed to be,” Liu said.
However, markets tend to have tunnel vision, she added, highlighting the example of trending baskets of stocks such as lithium and payment systems in recent years.
“In the last couple of years, we’ve seen a significant amount of opportunities because the markets have tunnel vision, where they just want to buy resources or just want to buy growth. It’s like the market has shunned everything else and bought one type of stock,” she said.
“Every manager you talk to, they will say ‘where’s the cash flow, who is going to buy this? I’m going to wait six months before I come back’ but we can do that because we can offset and short our basket of stock on the other side to offset our exposure.”
Presently, Tribeca’s Alpha Plus Fund, of which Liu is the portfolio manager, holds on average 60–70 long positions and 30–40 short positions. Since inception, it has delivered 9 per cent per annum against the benchmark of 6.3 per cent.
In the last 12 months to 30 September, it has seen a 13.7 per cent return against the benchmark of 13.5 per cent by the ASX 200 index.
“In the current market, there’s lots of opportunities. For long-term investors, this is actually fantastic because you don’t need to manage that, you can buy the company and in a couple of years, it will be fine because quality companies in two years will generate a lot of return and it will be stable and defensive,” she said.
“In the near-term, there will be price volatility. As an equity manager, my performance is [considered] every month which you look at very closely, so that’s why we hedge on the other side. But look, for a long-term investor, this is your playground.”
Liu observed that current conditions also provide a good chance to obtain bargain quality stocks for diversification which were trading below fair value estimates in August, according to Morningstar’s analysis.
“Portfolios should be dominated by diversified stocks of quality, a bit of growth, a bit of income, a bit of everything really, and that’s how you inch your portfolio forward year-on-year consistently in every market condition. I don’t believe [in] making money in just one of market condition, it’s every market condition you can make money, but it’s about being strict in what parameter you follow,” she said.
Looking ahead, the portfolio manager observed there are a number of positive things bubbling in the background for Australia, including population growth and fairly promising results from the last reporting season.
Liu explained: “This year’s Christmas might still be a little tough – remember we’ve had a good Christmas for many years – so things will slow, but heading into next year, we are looking at some of those positive factors flowing through.
“We’re seeing listings going up, housing prices stabilising in major cities, and don’t forget, mid next year, we’re looking at potentially more tax cuts coming through back to the consumer. We’re a consumer-oriented economy and these things will really help. Australia is actually looking pretty good.”
