Investors reassured: quality and foresight will prevail in 2016 … and beyond

Tim Samway

While many market commentators warn that we are in for a bumpy ride in 2016, equities manager Hyperion Investment Management remains calm and sanguine after a sustained period of exceptional outperformance.

In fact, according to Tim Samway, Managing Director of Hyperion Asset Management, investors who continue to focus on quality stocks and an intelligent long term investment horizon have no cause for concern.

Mr Samway described the current volatility and other features of the global market such as commodities slumps and a lower AUD as short term factors that are much less relevant to Hyperion’s investment view than the opportunities presented by companies with outstanding customer value propositions, strong balance sheets and the ability to grow intrinsic value for shareholders.

“Look at our investment environment,” he said. “The fact remains that we have a substantial ageing population of a reasonably wealthy middle class. That spells opportunity. The question for us is, where does that opportunity lie? And the answer is in seeking and predicting much longer term themes that develop over years and change markets for good, not short term cyclical fluctuations like the volatility of the exchange rate or gyrations in commodity prices.”

Mr Samway cited developments such as cloud computing, online fast food ordering and rapid delivery and other tech-related shifts that have fundamentally reshaped whole industries as examples of the profound long term movements the Hyperion investment team anticipates and acts upon.

Some examples of the kinds of companies Hyperion favours are:

• Cloud computing related stocks
• Technology stocks
• Global stocks, which are taking market share away from competitors by presenting customers with a substantially better value proposition (e.g. Dominos)

“We need to look at what’s disruptive and consider what kinds of new technologies and new business models are going to make a difference to their customers. What will their long term effects be? And how can investors capitalise on that?

“For example, Technology One is changing its client base from a software sale to an annuity income stream of higher quality by converting its software to the cloud.”

In further support of the Hyperion position, Mr Samway cited the restricted ability of banks and miners to increase their profits due to low credit growth and continuing weak commodity prices due to low global economic growth.

“If you need any further evidence of the need to look beyond the benchmark and think longer term about investing in the stocks of the future take a look at the top 50 stocks by size. The key challenge for investors is that a substantial number of these companies will struggle to produce anything like an acceptable return. In some case investors must look outside mature industries for future growth,” he explained.

Hyperion is well positioned to make the argument based on its long term performance figures, which are among the best in the market across all timeframes from inception in 1996 to the present. Hyperion has produced a return of 14.41%pa since inception in 1996, which is just over 5% better than the broader Australian market has achieved over that time.

“We are confident that over the next five years, economic conditions point to a sustained, albeit low growth market. Make the right decisions now and you will be ready to reap the rewards,” concluded Mr Samway.