Equity manager shifts to 'recovery plays' ahead of V-shaped recovery

High conviction Australian equity manager Blackmore Capital has flagged a major shift in its portfolio ahead of what CIO Marcus Bogdan suggests is a ‘V-shaped recovery’ in corporate profits over the next 12 months. Bogdan cites improving economic indicators including forward looking manufacturing PMI releases as a key reason to be more positive on the recovery as the calendar turns into 2021. He sees a ‘broad-based improvement’ in economic conditions along at the same time that new orders of product remain close to cycle highs.

In anticipation of this recovery in corporate earnings, Blackmore Capital have dropped New Zealand’s leading broadband network provider, Chorus (ASX:CNU), from their portfolio. The stock has performed strongly in 2020, it’s consistent revenue and reasonable dividend barely impacted by the pandemic. The decision wasn’t driven by a change in view on the company, but rather the. Need to find capital to fund a rotation to companies that are more ‘sensitive to a recovery in the economic cycle’.

The proceeds will be used to add a basket of cyclical/value stocks, several of which are already within the portfolio, but according to management warrant a larger weighting. Oil and gas producer Santos Ltd (ASX:STO) has already added to gains, experiencing a strong start to 2020 on the back of recent announcements by OPEC+ regarding supply cuts which sent the oil price to an 11-month high.

Vertically integrated logistics provider and port operator, Qube Holdings (ASX:QUB) was another addition. The company which owns a number of logistics hubs along with the Patrick Terminals and Asciano businesses has navigated the pandemic in reasonable shape thanks to booming commodity exports. Blackmore clearly expect consumer good and agricultural exports to recover along with the Australian economy.

Blackmore’s commitment to ‘patient’ investing, through which they seek to invest in businesses displaying consistency of earnings and strong balance sheets are reflected in the decision to top up allocation to biotech CSL Ltd (ASX:CSL) which has stagnated amid the cyclical/value recovery. With both funds restricted to holding between 20 and 40 individual companies and individual stocks able to move as high as 10-12% of the portfolio, quality has never been more important.