In this week’s conversation with Marcus Bogdan from Blackmore Capital, parallels were drawn to our recent discussion with Global Small Cap Investor Greg Dean from Langdon Equity Partners. The focus was on former high-quality or still high-quality companies that have experienced setbacks and how they remain a focus for the portfolio. Emphasising the concept of 'trough earnings' and 'trough multiples,' suggesting that these stocks, despite recent declines, may have a brighter future. As things start to feel a bit late in the cycle, it’s interesting to see a similar concept playing out here in Australia, as it is overseas.

A key theme from many fund managers we have been talking to recently has been the perceived need to decrease portfolio reliance on banks and resources.  Banks looks a bit expensive and possibly constrained in a lower credit growth environment. Our resources sector may yet benefit from the green transition but it is far from certain exactly how that is going to play out. If we do find ourselves near the end of multi-decade super cycle portfolios remain very much positioned for the last one so we have been asking fund managers where they see the opportunities and how they stack up against the big banks and miners.

In the conversation, several key themes emerged regarding the current state of the Australian stock market but what comes across is the more general point about the importance of fundamental analysis in constructing a resilient portfolio - just doing the work. This is interesting because Blackmore has always had a few big banks and miners in even their most concentrated and unconstrained portfolio but now only BHP is still there. Instead they have taken an unusually contrarian approach and leaned against some dominant market narratives. This is now starting to pay-off. 

One of the most significant themes discussed in this week’s video with Marcus was the potential for some of our healthcare national champions to deliver strong returns in the coming years, even though they are priced much more reasonably than in recent years. Blackmore Capital's portfolio is now heavily weighted towards this sector via CSL and ResMed. Despite the recent underperformance of healthcare stocks, Bogdan believes that the fundamentals for the sector remain strong, driven by factors such as ageing demographics, the rise of chronic diseases, and the increasing importance of large-scale healthcare providers. We have seen Resmed back this up with strong results recently but perhaps more interestingly he is even more confident in CSL which has lost its lustre for a lot of investors having been a market darling for so long. 

Data centres, AI and cyber security have almost organically turned into a theme through holdings in Spark and Macquarie Technology Group (both originally bottom-up picks) but beyond that Bogdan noted that the current portfolio has become less easily categorised into simplistic themes like value, growth, or quality. That diversity could lead to increased resilience and less reliance on broad macroeconomic trends which is probably where most Australian portfolios should be heading.