By Fiona Rotherham
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Wednesday 1st December 2004 |
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Carmel Fisher
Fisher Funds Management
"You often hear people say that to be an entrepreneur you have to step outside your comfort zone. I have actually found the opposite to be true," says Carmel Fisher. She set up Fisher Funds Management in 1998 after having a child and realising she wanted to have a good lifestyle balance. Having lost her job in a small share broking firm after the 1987 stock market crash, she started working with Sovereign Assurance and Prudential as an investment analyst. As one industry commentator says, she's "the best-looking funds manager in the industry" and stands out because she's prepared to express her views publicly and stand by them.
Fisher's top picks for 2005
Transport and logistics operator Mainfreight and retirement village operator Metlifecare are Fisher's favourites. Mainfreight has been a consistent performer and has a good management team, she says. The only disappointing aspect of the company's results has been its Australian performance, which has now turned the corner and is improving each month. Fisher expects the company will grow earnings faster than the broader market as a result of improving international operations and a resilient domestic business. Further profit is likely in the next year as Mainfreight completes the integration of its subsidiary Owens, she says.
Metlifecare is New Zealand's largest retirement village operator. Fisher says the company has a quality property portfolio and runs a good business in managing retirement villages. The company's business structure means it effectively sells properties it bought eight years ago at today's prices. It has a strong balance sheet and has proven resilient in economic downturns, she says. Fisher expects further profit growth in the year ahead will ultimately translate into share price performance.
2004 star performers: Michael Hill Jeweller was the gem in Fisher's portfolio to the nine months ending in September, with a 53% lift in its share price. The major contributor to Fisher's performance during the same period was Waste Management, which rose 32%.
What they look for: Fisher Funds' primary investment strategy is to buy only New Zealand stocks and take sizeable stakes in small to medium-size businesses. Fisher says she's a bottom-up investor, choosing companies on their merits, rather than because they are included in a particular sector or market index. She maintains highly concentrated portfolios with fewer than 20 stocks held at any one time.
How they performed: The Fisher Funds NZ Growth Fund has averaged a 19.53% return, before tax, over the last five years.
How much they handle (NZ equities): $300 million
Shane Solly
ING New Zealand
ING's senior investment manager Shane Solly likes to keep a low personal profile. Raised in South Auckland, Solly worked in the holidays laying concrete roof tiles for Ross Roofing or hiring out equipment for McEntee Hire which, he says, taught him how hard people work to make a living and the value of a dollar. In his spare time, Solly likes the odd game of tennis, which he likens to the way he invests in equities - "consistently keeping up the returns and knowing when to play the winning shots". Solly has been with ING for five years and his whole career has been in money management. "I get my kicks out of finding cheap stocks with strong cashflows and good mangaement, where the corporate governance process doesn't shaft minority investors." He's managed funds for Citibank, ANZ and National Mutual and had a brief stint on the Air New Zealand corporate finance team.
Solly's top picks for 2005
Childrens' clothing retailer Pumpkin Patch has caught Solly's eye. After listing in June, the company has enjoyed better-than-expected market conditions and its international roll-out is ahead of schedule. He's less focused on the international side of the business than other investors and is keener to see what the company does with its existing business structure. The retailer has a number of low-risk, high return growth options available to it that aren't, as yet, reflected in its share price, Solly says.
He also likes the look of Fisher & Paykel Healthcare, which he describes as a true growth stock in a fast-expanding sector. Both its management and balance sheet are strong, and the company continues to develop products that grow market share and margins, Solly says. The stock is undervalued with investors struggling with the impact of the strong New Zealand dollar.
Sir Ron Brierley's investment company, Guinness Peat Group, is another favourite. Solly reckons investors are underestimating GPG's ability to continue to grow the group's net tangible assets. Its investment in UK-based industrial threadmaker Coats Group may prove to be as big a value creator as listed insurer Tyndall proved for GPG, he says. The good news is that international investors haven't got their heads around what the company's value might be, which is great for local investors.
2004 star performers: Pumpkin Patch - the stock has risen over 70% since listing this year. Management has a proven track record of growth, the company is well-established in New Zealand and Australia and has world-class logistics and retail skills, he says.
What they look for: ING's portfolio managers are also "stock-pickers". They look for companies that consistently grow earnings and cashflow, management with a proven ability to handle change, and strong balance sheets that can fund growth and help the company survive market downturns.
How they performed: The ING New Zealand Share Fund has shown a net return of 15.95% per annum after tax and fees this year. The ING Equity Selection fund launched in June has shown a 5.7% return in its first three months.
How much they handle: $900 million
Andrew Bascand
Alliance Capital Management
When he's not making money for Alliance, you're likely to find Andrew Bascand enjoying the grapes and wine from his Marlborough vineyard. When he returned from a seven-year stint in London in 1998, Bascand noted that most New Zealand investors had adopted the value-based investment style (identifying and buying into companies with a market value well below their intrinsic value) that he had used in the UK. Now equities portfolio manager for Alliance Capital, he figured the investment strategy he had honed managing $6 billion in global equities for Merrill Lynch in London would have potential in the much smaller New Zealand market.
Bascand's top picks for 2005
Auckland International Airport stands out among the larger companies with a forecast return on equity of 18% for 2005, a recent 3% upgrade for 2005 earnings and a 78% gross margin, Bascand says. The fat margin should help the airport maintain profit growth despite recent hikes in oil and airline ticket prices, which may deter some travellers. He still expects double-digit tourism growth for next year.
Fisher & Paykel Healthcare is the best example of a large domestic growth stock, Bascand reckons. A forecast return of 33%, more new product launches, gains in market share, and a forecast rise of about 15% in earnings over the next year point to a robust outlook, he says. However, one hurdle facing F&P Healthcare is the New Zealand dollar. The company is well hedged for next year but as its sales are denominated in US dollars, the current strength of the Kiwi dollar may hurt earnings growth in 2006, Bascand says. Positives include recent deals with distributors, especially US healthcare group Apria, and strong unit sales growth in its obstructive sleep apnea (OSA) therapies.
Across the Tasman, Bascand likes the look of companies servicing the mining and oil/gas industries, although the sector is volatile. In particular he likes Newcrest Mining, which has significant exploration and resource reserve upside. A doubling in sales revenue, coupled with a decline in unit costs, should see profits jump by 160% between 2004 and 2005, with return on equity rising 25%.
2004 star performers: There have been two star performers for Bascand this year - Fletcher Building and global resources company BHP Billiton. Fletcher Building had improved return on equity and strong earnings growth under a good management team, he says. And Australian-listed BHP Billiton has had huge growth in return on equity this year, and it's had some successful oil finds.
What they look for: Alliance Capital is often branded a growth investor. It looks for stocks with a competitive advantage and above average return on equity. A good signal in choosing stocks is the extent to which forecast earnings are being positively revised, as this is often a key indicator of competitive advantage, Bascand says.
How they performed: Since 2000, when it was then known as Axa, the company's high growth funds have averaged gross returns of 17.1% per annum, outperforming the New Zealand share market by 8.1% a year.
How much they handle: $1.4 billion.
Tore Hayward
AMP Capital Investors
Tore Hayward, manager of AMP's diversified funds, spends time out of the office with his young family or playing in-line hockey (ice-hockey on roller blades). Hayward, who became chief investment officer at AMP Capital earlier this year, heads the team which won first runner-up in the New Zealand equities category in this year's FundSource Fund Manager of the Year.
Hayward has worked for the Reserve Bank, ANZ, Fay Richwhite, ACC and Tower. In mid-2000 he decided to take a mid-career break, shifting to the country with thoughts of becoming a primary school teacher for a few years. But the dream didn't stack up financially and he was lured back into the funds management industry by the ANZ.
Hayward's top picks for 2005
Hayward and his team opted for Australian information technology company Iress Market Technology as one of their top stock picks. Iress has 85% market share in Australia and New Zealand in the provision of equities market information, competing against the likes of Bloomberg and Reuters. Hayward says Iress has all the attributes his team looks for - focused management, good revenue and double-digit profit growth, high, sustainable margins, strong cashflow and a debt-free balance sheet. It has growth possibilities in Canada after recently entering into a joint venture with another US information provider, Information Technology Group, which gave it a 30% market share in Canada from day one.
Domestically, Hayward's team favours Fisher & Paykel Appliances, despite the company in August announcing its full-year profit will be much the same as last year's. Hayward sees upside because its US operations have been performing well. He also thinks the recent $49.3 million acquisition of Dynamic Cooking Systems, a leading high-end US cookware manufacturer, was a good deal as the two companies have complementary products.
2004 star performers: AMP Capital's star performer this year was Michael Hill Jeweller, which returned 58% in the year to the end of October, including the grossed-up value of dividends paid. The company's performance probably won't be as spectacular next year, but growth is likely through further roll-outs in Canada and Australia.
What they look for: AMP Capital is an active investor, targeting companies whose capital is attractively priced and well utilised. It believes opportunities to add value through active management arise because markets routinely overreact to short-term news.
How they performed: The best performing AMP fund over the last three years has been the Strategic Equity Fund, which has had the greatest latitude to deviate from the market capitalisation weightings of the New Zealand share market. Since its inception in January 2001, the fund has returned 20.4% per annum on a gross basis, compared with a gross return of 13.1% for the spliced NZSE40/NSX50 index.
How much they handle: $1.2 billion, of which $230 million is managed passively.
Stephen Walker
Walker Capital Management
Three years ago Stephen Walker left AMP, where he managed its New Zealand equities, and set up his own firm. He'd lost his job in a restructuring and unsuccessfully sued AMP for $1 million in a personal grievance claim through the Employment Relations Authority. Despite claiming his reputation suffered from unfavourable media attention when he lost his AMP position, Walker is well-respected in the industry and known for his thoroughness. He deals with wholesale rather than retail clients. His 17-year investment experience includes a number of years in Australia with Canberra-based Commonwealth Funds Management.
A keen road cyclist, the downside of running his own business is that he doesn't get to ride his Italian-made bike as often as he would like. He's also a keen follower of European cycling events via TV and the internet.
Walker's top picks for 2005
He reckons Rubicon has a strong international outlook - his client portfolios own more than 6% of the company. Rubicon owns a portfolio of investments, the most significant of which is 50% of Tenon and 31.7% of US-based forestry biotech company ArborGen. What's the attraction? Tenon has built a strong position in the US with its stakes in Empire and American Wood Mouldings, which are the preferred moulding suppliers to Lowe's and The Home Depot respectively. Walker expects continued strong underlying growth from both these companies and sees the potential to leverage their distribution expertise in other markets.
Rubicon, MeadWestvaco and International Paper are equal partners in ArborGen, with 31.7% each. ArborGen is working on the development and commercialisation of a number of core projects with significant market potential, including faster growing trees, improved wood quality, improved pulping characteristics and the development of cold-tolerant Eucalyptus. The first commercial product is probably four to five years away, as regulatory approvals must be gained for biotech trees.
2004 star performer: WCM's best performer and the largest contributor to its performance for the 12 months to September 2004 was express freight and transport company Freightways, which produced a gross return of 61.4%. The company recently announced a strategic relationship with New Zealand's other leading transport company, Mainfreight.
What they look for: Before investing, Walker Capital Management asks two fundamental questions: "Is this a great business?" and "does it have great management?" It looks for high-quality growing companies earning high sustainable returns on their capital. Typical areas of focus are management's strategies and skills to grow the business, whether the industry has high barriers to entry, and the nature and sustainability of the company's competitive advantage.
How they performed: The gross returns for its Australasian equities selection was 33.6% per annum in the year ending 30 September 2004 and from WCM's inception at the end of 2002 a very reputable 70.1%.
How much they handle: Over $200 million.
Rickey Ward
Tyndall Investment NZ Management (formerly Guardian Trust)
Most weekends you'll find Rickey Ward, Tyndall's joint domestic equities manager, out on the golf course with a group of local industry friends who all have similar handicaps (18-ish) or renovating his 1910 concrete villa. The up-and-coming fund manager has been with Tyndall for around nine years.
The former actuary had a brief stint in the broking market in the early 1990s, losing his job with ANZ McCaughan Securities in a restructuring after just 12 months. But he was immediately hired by his current employer, then-named Guardian Trust Funds Management.
Ward's top picks for 2005
Ward's favourite is Guinness Peat Group, which has a proven management team headed in New Zealand by Tony Gibbs. While not a yield company, it has consistently created shareholder value with an annualised return of 17% per annum since listing in 1991, Ward says. GPG creates wealth by acquiring companies, generally at below asset backing, and then attacking costs, selling surplus assets or reorganising the business. Capital management will be key to next year's best performers, Ward says, and he rates GPG's skills second to none in this area. He's expecting significant upside in GPG's share price, some of which is likely in the upcoming year, because of his expected depreciation of the Kiwi dollar, some asset sell-offs and further information on the company's major investment - UK-based Coats.
2004 star performers: The three best contributors to Tyndall's performance this year have been Fisher & Paykel Healthcare, Pumpkin Patch and Toll NZ (formerly Tranzrail).
What they look for: Tyndall favours companies that combine good boards and management. It looks for a track record of providing investors with double-digit returns on invested capital, strong cash flows, and some form of pricing leadership in the sectors the companies operate within.
How they performed: Tyndall's recent performance has been in the top quartile of local fund managers, according to most consultants' surveys, for each of the last three years. It claims to have outperformed the benchmark - currently the NZSE50Free Float Gross Index, in excess of 4% for both the year to date (6.3% in excess of the NZSE50 index over the last year) and on an annualised basis for the past three years. That means Tyndall clients received a total gross return of 30% for the past year.
How much they handle: $450 million
Paul Richardson
BT Funds Management
Paul Richardson took the role of BT's New Zealand equities and listed property portfolio manager in March, replacing veteran Andrew South. Richardson has worked as a ski patroller for the National Parks and he's a keen cross-country and downhill skier. During the 1980s he worked as a geologist in the mining industry at home and in Asia, before moving into finance. Richardson was a well-respected analyst, particularly for telecommunications companies, and was also head of research at UBS Warburg.
Richardson's top picks for 2005
Richardson favours forestry giant Tenon and hire equipment companies. BT is overweight in Tenon (formerly Fletcher Forests) and expects value to be recognised over the next year as the company sells more assets. He's been impressed by the performance of Tenon's US assets - substantial holdings in two moulding and millwork distributors and a 20% stake in solid wood furniture manufacturer Zenia House. When investor Rubicon took over Tenon a few months back, it indicated the wood processor would push its North American distribution assets harder. And Richardson reckons the US businesses could win higher market ratings as earnings grow.
Equipment hire is another industry that Richardson likes, given the expected strong infrastructure and non-residential construction outlook in Australia and New Zealand. Both Hirequip and Coates Hire are in BT's portfolio. The two companies have well-established networks, strong brands and focused management, he says. Richardson's picking continued demand, particularly from small to mid-size contractors, who will always need to hire plant.
2004 star performers: Natural Gas Corporation was a star performer for BT this year, with a stellar 197% share price rise from $1.74 to $3.10 - 173% better than the NZSE50 gross index performance. Richardson liked the incoming management (after problems in 2001), the exit from risky parts of its business, the quality of its core gas pipeline business, the ability to extract stronger cashflows and return of capital to shareholders. The case was boosted by parent AGL wanting to exit.
What they look for: The BT team are "stock-pickers" - buying into undervalued companies with sustainable growth. It does in-depth, bottom-up analysis, including talking to management, competitors, suppliers and regulators in order to rate the management team, the company's competitive advantage, financial position and industry trends.
How they performed: BT's NZ equities grew 15.02% per annum before tax over the last three years or 9.65% net.
How much they handle: $220 million
What the experts pick for 2005
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