Reporting season meets the “September effect”, investors urged to get active
Emanuel Datt
Reporting season has reminded investors of a plain truth that not all companies are equal. The S&P/ASX 200 has remained steady, but beneath the surface, shares have swung significantly. In markets priced for perfection, even minor disappointments bite according to boutique Australian equities manager, Datt Capital.
September tends to unsettle equities, but October often resets them. Emanuel Datt, CIO Datt Capital notes, “Seasonality provides context but not a forecast. Investors should not retreat on superstition. They should use September’s nerves to build positions in strong franchises and then let October’s reset do the heavy lifting.”
Datt highlights the active edge, especially now. “Today passive funds own the index covering both the winners and laggards. That can work when earnings are broad and valuations are forgiving. With growth slowing and multiples rich “own everything” risks owning too much of the wrong thing.
“In this scenario, active investors should tilt towards rate-sensitive winners and away from crowded or structurally challenged names. Volatility makes this worthwhile as result-day moves have averaged more than 7 per cent this season, among the highest in years. For passive holders, these swings cancel out the returns. As active managers we see dispersion as an opportunity.”
He adds that dispersion will continue to persist. “Two forces argue for wide spreads to continue. Firstly, as Australian super funds channel vast amount of capital into index products, fewer active hands will absorb market related shocks. Liquidity gaps will widen.
“Secondly with the ASX 100 trading at elevated multiples, companies are priced for perfection. So any stumble is severely punished. We saw this in the current reporting season. When you layer September’s unease on top, we see a market that rewards resilience and penalises weakness.”
“To counter these forces, as an active manager, we follow a well-researched playbook. We begin by screening for balance-sheet strength, prioritising companies with net cash or low net debt, robust interest coverage and consistent free cash flow conversion. Our preference is for “self-help” over “blue-sky” stories, meaning we look for credible margin drivers such as diversification, pricing and cost programs, as well as disciplined capital allocation, rather than speculative growth narratives.
“We also lean into forced selling opportunities, using earnings-day gaps and September volatility to scale into high-quality names at more favourable prices. When it comes to cyclicals, we de-risk with discipline holding only those with fortified balance sheets and avoiding companies reliant on the next price upswing to meet covenants.
“We remain nimble in a market of sharp moves, favouring staged entries and exits over point-to-point bets,” Datt says.
For years, the case for passive looked unassailable with low fees, broad exposure and decent outcomes. Today warrants a rethink. “When single-day moves of 10–20 per cent are possible, investors cannot afford to be passengers,” says Datt.
“Stock selection matters again.”
