Emanuel Datt

As markets absorb the consequences of a federal budget handed down against a backdrop of persistent inflation, Melbourne-based fund manager Datt Capital says investors are asking the wrong question about interest rates.

“Whether the RBA hikes again is not the primary investment question,” says Emanuel Datt, chief investment officer of Datt Capital. “Markets have largely priced in further tightening. The more important question is duration: how long does the cash rate stay at or above 4.35 per cent?”

The cash rate is back at levels last seen in late 2011 – a comparison Datt says is frequently misread. In 2011, the RBA was in an easing cycle, moving rates lower and giving households and businesses a credible forward expectation of relief. In 2026, the direction is reversed, with market pricing pointing toward 4.7 per cent by year end and no cuts anticipated until 2028.

“Businesses and households are not pricing in relief,” Datt says. “They are stress-testing against the possibility of more restriction.”

That asymmetry changes behaviour in ways nominal rate comparisons cannot capture. Australian household debt to GDP reached approximately 113.7 per cent in mid-2025. The nominal mortgage balances being repriced today are far larger than in 2011, even at equivalent rates, because property prices have risen substantially in the intervening 15 years. Housing costs rose 6.5 per cent year-on-year to March 2026. Electricity prices are up 25 per cent as government rebates roll off.

Roy Morgan modelling^[1] projects mortgage stress affecting 1.6 million Australians, approximately 30 per cent of borrowers, following the May rate hike.^[2]

“Household consumption is expected to take a hit from weaker real incomes as higher prices erode spending power,” Datt says. “This is not a brief tightening correction but a prolonged period of restrictive policy operating against a structurally constrained economy.”

Against this backdrop, Datt says investors should focus on distinguishing businesses that can absorb a sustained high-rate period from those whose earnings are structurally dependent on cheap credit or consumer discretionary spending.

“Businesses best positioned share common traits: low debt relative to earnings, high interest cover ratios, and pricing power that allows them to pass through input costs without losing volume.

“Energy producers and gold-linked businesses benefit directly from the inflationary conditions driving rates higher. Defensive industrials and essential services with contracted revenue streams also carry structural insulation.

“But we remain cautious about highly geared companies rolling over debt at materially higher rates, consumer discretionary businesses exposed to household spending compression and companies with thin margins in competitive industries where pricing power is limited.

Small-cap companies warrant particular scrutiny, Datt says. “While the segment contains businesses with strong earnings quality, the cohort as a whole carries higher refinancing risk and is more sensitive to credit tightening than large-cap peers.”

“We are focussing on duration risk across both fixed income and equities. In fixed income, floating-rate exposure is favoured over long-duration instruments. In equities, quality earnings should take precedence over growth narratives that require continued multiple expansion.

“For investors in or approaching retirement, the depth and timing of drawdowns should matter as much as average returns. A capital preservation approach focused on risk-adjusted returns becomes more important than ever as the cycle extends.

“Diversification across asset classes and geographies is more valuable in a period of domestic stagflation risk than in normal cycles, where correlation assumptions between asset classes hold more reliably,” he says.

———

Notes:
[1] Roy Morgan modelling
[2] https://www.roymorgan.com/findings/10198-mortgage-stress-risk-march-2026

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Emanuel Datt

The current fuel crisis is reshaping how markets interpret energy risk, with fuel scarcity emerging as a more persistent economic constraint rather than a short-term cyclical factor, according to Datt Capital Chief Investment Officer Emanuel Datt.

Datt says, “The energy landscape is disrupted across multiple fronts. Fuel scarcity is probably here to stay for the medium term due to ongoing blockades, constrained refinery output, and export restrictions on key petroleum products.”

Beyond crude oil, Datt highlights broader vulnerabilities across energy, particularly in liquefied natural gas (LNG). Supply disruptions involving Qatar, which accounts for a significant share of global LNG exports, are exacerbating volatility across energy markets.

Domestically, Australia faces its own set of structural challenges, particularly in refined fuel products such as diesel and jet fuel. Datt notes the current situation has underscored the country’s limited refining capacity, leaving it exposed to global supply disruptions.

This vulnerability has prompted government intervention, including increased support for domestic refiners Ampol and Viva Energy. The level at which Federal government support commences for Viva’s Geelong refinery has increased from A$10.2/bbl to A$15.9/bbl refining margin, with the maximum support cap lifted 78% to A$13/bbl.

“The situation demonstrates that energy security is not just a price-driven exercise. Australia is likely to pursue a more balanced approach between imports and domestic production over time.”

Recent government measures, including underwriting oil shipments and relaxing diesel standards, signal a broader pivot away from reliance on market pricing mechanisms towards ensuring physical supply.
“This marks a notable shift in policy thinking. It speaks to the importance of hydrocarbons to a modern economy like Australia, in contrast to the current policy settings with the strong focus on renewables seen just five years ago. While Australia remains resource-rich, the key challenge lies in converting upstream production into usable fuel for domestic consumption, an area likely to see increased policy attention.

“Fuel is an input to almost everything. Higher energy prices will broadly increase the cost of doing business,” adds Datt
“We expect this to flow through in company announcements across the next reporting season. Sectors such as industrials, logistics, miners will have their profits disproportionately affected, whereas financial companies will be bit more insulated. However, I do expect there’ll be a consistent stream of earnings downgrades over the coming quarter.

“We have repositioned our portfolios towards a greater weighting towards energy exposures, because when energy becomes the constraint and demand remains relatively inelastic, we typically see stronger prices over the medium term.

“We are also maintaining elevated cash levels, anticipating potential market weakness and more attractive buying opportunities ahead.”

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Emanuel Datt

Artificial intelligence may be disrupting global equity markets and challenging traditional business models, but Emanuel Datt, Chief Investment Officer of Datt Capital, believes the long-term implications are overwhelmingly positive, particularly for Australian companies.

While the US market has struggled to regain momentum amid rapid AI-driven disruption, Datt argues the narrative is far from “doom and gloom.”

“It’s not all negative,” Datt says. “Ultimately, it’s about increasing productivity and efficiency, which is good for company owners and shareholders. We are already seeing very tangible productivity benefits playing out in real time, especially in the current reporting season.”

He highlights TechnologyOne’s (ASX: TNE) recent upgrade as evidence of real, measurable improvements in productivity and efficiency.

“These are tangible real-world outcomes. It’s not just conceptual anymore. If current performance levels can be maintained, parts of the technology sector now represent better value than they have for years. They’re looking more fairly valued than they have been for a very long time,” he says.

“While AI-driven efficiency gains may result in workforce reductions in some areas, we view this as a broader economic evolution rather than a crisis. With increase in productivity, products and services will ultimately get cheaper. That can reduce inflation and free people up to do something else. This is just a change in the economy and the nature of employment over time.”

“The real shift is that we’re seeing efficiency gains across multiple sectors. And that’s ultimately a positive story for shareholders and for Australia.”

The latest wave of AI product launches has intensified debate around the sustainability of established business models, particularly within software-as-a-service (SaaS).

“However, disruption does not equate to destruction. The current reporting season is showing that companies actively adopting AI are already demonstrating measurable improvements.

“Companies are trimming down their cost base and increasing efficiency across multiple metrics. Historically, operational improvements were often measured in basis points. Now some businesses are reporting gains in percentage points, this is a significant shift for large institutions.

“Even traditionally bureaucratic sectors such as banking are prime beneficiaries. Banks are notorious for being slow to adapt to change and carry excessive overhead and inefficiencies. For institutions of that nature, AI adoption is excellent.”

 The productivity story extends well beyond office-based sectors. Australia’s major miners have been particularly proactive in deploying advanced systems.

“The big miners operate fixed assets, so it’s all about maximising utilisation time,” he says. “Over the past three years we’ve seen increasing adoption of more advanced technology systems to make operations more predictable and efficient.”

Given Australia’s recent productivity challenges, he sees widespread AI implementation as a structural positive for the broader economy and a win-win for the economy.

“The US market is viewed as a leader for good reason, but Australia is very different in virtually every aspect,” he says. “We’re well insulated from the tech boom in AI and well poised to benefit from its adoption.”

“The recent pullback in technology stocks is not evidence of structural weakness but a recalibration. We’ve seen the tech sector punished quite brutally since the start of the year from these fears. But they all seem to be reporting quite well.”

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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.”

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Emanuel Datt

Geopolitical risks remain high, but markets have so far shown resilience, supported by low unemployment and strong liquidity conditions, providing opportunities for investors that know where to look, according to Emanuel Datt, chief investment officer at boutique Australian equity investment manager Datt Capital.

“For investors, the question is clear: how do you position portfolios when the economic picture is neither boom nor bust, but something more nuanced,” Datt said.

Australian equities may have pushed towards record nominal highs, but when adjusted for inflation, the market still sits about 15 per cent below its 2007 peak. Datt said this anomaly becomes even more striking when comparing small-cap valuations to large‑caps.

“Small cap earnings multiples remain at a material discount to large caps, something highly unusual historically,” Datt said.

Technology and gold stocks may be positioned particularly well in the current environment. Datt said that rather than chasing speculative AI stocks, it was better to look for companies positioned to benefit from the adoption of AI, such as those reducing operational costs through automation.

“With ongoing currency debasement and stimulus settings, gold continues to serve as a reliable store of value in uncertain times. Critical metals, driven by demand for robotics and advanced manufacturing, are another area of interest,” Datt said.

A small cap stock that Datt Capital has recently bought into is fertility services provider Monash IVF. The fund manager believes that despite recent operational challenges, the board has stepped in appropriately.

“We saw Monash IVF as a market leader in a defensive sector with strong demographic tailwinds. The board’s decisive action and the opportunity to invest at a significant discount reinforced our conviction in its long-term potential,” Datt said.

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Emanuel Datt

Australia’s surging population, propelled by a wave of overseas migration, is reshaping the economy and creating what boutique investment manager Datt Capital calls a structural investment opportunity across housing, healthcare and financial services.

According to the Australian Bureau of Statistics (ABS) the national population is projected to reach between 36 million and 45 million by 2056. The country recorded net overseas migration of over 667,000 people in 2024, slightly down from 739,000 in 2023 but still significantly ahead of government forecasts by approximately 200,000 annually.

Emanuel Datt, Chief Investment Officer at Datt Capital, believes this strong migration trend is more than a statistical anomaly. “We see structural population growth and migration-driven demand as key catalysts for long term investment opportunities, particularly benefiting Australia’s small cap companies,” he said. “Population growth boosts aggregate demand and acts as a shield against economic contraction, while simultaneously allowing the economy to expand without rapidly encountering labor market constraints.”

Datt Capital highlights that Australia is now entering a multi-year, demand led growth phase, particularly in segments where supply is structurally lagging.

As of March, the total number of dwelling units commenced rose 11.7% to 47,645 dwellings, far behind both on estimates of demand and the government’s target of building 1.2 million homes in five years.* As a result, vacancy rates in major cities have dropped below 1%, despite interest rate pressures. “Housing undersupply is a persistent issue across all states now,” said Datt.

Healthcare sector is gaining traction due to expanding patient loads, growing aged care requirements and in financial services there is increased activity in mortgage origination. “We see these trends accelerating in response to population growth,” Datt added.

Datt draws parallels between Australia and Canada, both of which have embraced high immigration as a growth lever. However, Australia appears to be better positioned to monetise the demographic shift. Australia posted GDP growth of approximately 2.3% in 2023, compared to Canada’s 1.2%.

“Despite similar migration rates, Canada is grappling with demographic and housing challenges, while its real GDP per capita is projected to decline. Meanwhile, Australia is leveraging its immigration tailwinds more effectively, helping maintain consumer confidence and labor market stability,” Datt said.

In terms of investment strategy, Datt Capital believes the most effective exposure to these macro forces lies in high-quality small and mid-cap companies with the capacity to scale into under served market segments.

“The healthcare industry, in particular, is expected to continue its upward trajectory, with a projected compound annual growth rate (CAGR) of 4.5% from 2021 to 2028, driven by an ageing population’s increasing demand for healthcare services and the pressing need for digital infrastructure. The industry offers favourable demographics due to Australia’s ageing population, a strong focus on research and development (R&D), a robust regulatory framework, public-private partnerships and opportunities in medical tourism,” he added.

“Looking forward, the Datt Capital Small Companies Fund is well positioned across thematically aligned businesses in residential development, diagnostics, mortgage servicing and digital financial infrastructure,” said Datt.

“Passive strategies often overlook these sectors, but companies in these sectors offer strong earnings growth and pricing power. For investors willing to target underserved pockets of the economy, the implications are potentially transformative.”

———–

*Source: Australian Bureau of Statistics: https://www.abs.gov.au/statistics/industry/building-and-construction/building-activity-australia/latest-release

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Emanuel Datt

Boutique Australian equity investment manager Datt Capital has announced that its Datt Capital Absolute Return Fund and Datt Capital Small Companies fund have been added to the Mason Stevens Investor Directed Portfolio Service (IDPS) platform.

The Mason Stevens IDPS is widely used by financial advisers seeking to construct diversified portfolios across multiple asset classes. The addition of Datt Capital’s funds, which exhibit low correlation to their peers and benchmarks, enhances advisers’ ability to include differentiated, active Australian equity strategies as part of a balanced and diversified investment offering.

“This inclusion broadens access to our high-conviction strategies for both advisers and wholesale investors,” said Emanuel Datt, Chief Investment Officer of Datt Capital. “It is the third major platform listing this year, following Netwealth and HUB24. We’re pleased to offer our investment expertise to a growing number of advisers and their clients nationwide.”

The Datt Capital Absolute Return Fund, launched in August 2018, seeks to deliver consistent absolute returns across the economic cycle, with a strong focus on capital preservation and downside protection. As at 31 May 2025, the Fund has delivered a net annualised return of 18.07%.

The Datt Capital Small Companies Fund, launched in October 2023, aims to generate alpha from ASX-listed small caps (ex-ASX 100) using the same disciplined, research-driven approach. As at 31 May 2025, the Fund has returned 32.08% annualised net of fees since inception.

“Australian equities remain a long-term wealth creation engine, having delivered an average annual return of 9.6 per cent over the past three decades, outperforming residential property, fixed income, and cash.  Our funds are grounded in this belief, with an emphasis on capital preservation, downside protection and asymmetric upside,” Datt said.

Datt also highlighted the appeal of the small-cap sector in the current market environment, noting that innovation and operational agility are key drivers of growth.

“Each dollar earned by a smaller company has an outsized impact, especially when scaling from a lower base. For example, Monash IVF (ASX: MVF), despite recent operational challenges, retains a 20% market share and holds strategic long-term value. We’ve recently taken a position in Monash based on our conviction in its recovery and upside potential.”

He added that ongoing M&A activity, particularly from offshore acquirers, continues to highlight the value and opportunity within the underappreciated Australian small cap universe.

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Emanuel Datt

Despite facing one of the most challenging starts to a year in recent memory, the Datt Capital Small Companies Fund has defied broader market trends, posting strong result through a defensive blend of strategic gold exposure, disciplined stock selection and active management.

The Small Companies Fund has returned 22.51% net to its investors in the financial year to date (as at April 2025), outperforming its Small Ordinaries Accumulation Index Benchmark by over 17%; in a manner uncorrelated to its peer group.

As markets faced renewed volatility following President Trump’s trade sanctions, Datt Capital made a decisive move to increase its exposure to gold. The precious metal rallied 19% over the March quarter, delivering a significant boost to the Fund’s performance.

“We anticipated a resurgence in geopolitical and economic uncertainty that would support safe-haven assets like gold,” said Emanuel Datt, Chief Investment Officer at Datt Capital. “Our proactive positioning in this space was a key contributor to our outperformance.”

The Fund’s portfolio adjustments over the year reflected a high-conviction approach to undervalued and strategically attractive assets and reinforces the value of a high-touch, research-driven investment process.

“Our investment in Metals X (ASX: MLX), trades at just 2.5 times EBITDA with strong cash backing, exemplifies our focus on value and balance sheet strength,” Datt said. “We also increased our holding in Gold Road Resources (ASX: GOR), which consequently drew an improved bid from Gold Fields resulting in an excellent result for shareholders.”

With volatility at elevated levels, Datt Capital implemented a series of measured steps to safeguard investor capital and prepare for market dislocations.

“We reduced exposure to high-beta sectors, elevated our cash holdings and positioned the portfolio to capitalise on tax-loss selling, which often presents unique entry points in June,” said Datt.

This methodical approach proved prudent, with the ASX 200 falling 3.9% and the ASX Small Ordinaries Index down 2% over the same period.

“In times of dislocation, passive strategies often fall short,” Datt stated. “Active management allowed us to avoid overvalued sectors, identify resilient, high-quality businesses early and adapt our positioning dynamically.”

Looking ahead, Datt Capital remains cautiously optimistic. The team continues to focus on quality companies, liquidity and opportunistic deployment of capital.

“We believe the current environment, though volatile, presents rare opportunities for those willing to be patient and disciplined,” said Datt.

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Emanuel Datt

As global markets remain gripped by volatility, the Australian equity market is proving to be relatively resilient. According to Emanuel Datt, Chief Investment Officer of Datt Capital, a combination of currency dynamics, attractive USD-based valuations and the inherent nature of Australian economy are driving this outperformance and providing a compelling case for investors seeking defense and growth.

“Despite the ongoing volatility in global markets, the Australian share market continues to show pockets of strength,” Datt says. “This is being driven by a combination of factors that are often underappreciated by global investors.”

A significant part of this resilience stems from the Australian dollar itself. As a free-floating currency, the AUD naturally adjusts to global shocks, which helps cushion the impact on local businesses and exporters. The currency’s link to global commodity demand further reinforces this effect.

“When prices for key exports like iron ore, LNG and lithium are strong as they are today, the currency tends to remain firm, supporting both corporate earnings and investor confidence.”

Datt also highlights the role of monetary stability in making the AUD attractive for carry trades.

“Compared to many Western countries, Australia enjoys relatively stable interest rate settings and lower inflation volatility, which enhances the appeal of its financial markets for international capital.

“In valuation terms, Australian equities continue to trade at a discount relative to their U.S. and European counterparts, particularly when measured in U.S. dollar terms. In USD terms, Australia offers significant value,” Datt said. “Relative to the U.S. and Europe, our market remains undervalued, which is increasingly catching the eye of global value investors.”

The appeal is further enhanced by Australia’s consistently high dividend yields across many key sectors, which are particularly attractive to investors seeking income in uncertain markets. This stands in contrast to tech-heavy indexes where dividends are often negligible or non-existent.

Australia’s economic structure adds another layer of defensiveness. The market is dominated by value oriented sectors such as materials, energy, and financials and has relatively limited exposure to the more volatile technology sector. “This helps reduce market beta during periods of global risk aversion. Meanwhile, the country’s well-regulated and concentrated banking system supports domestic financial stability and reinforces investor trust.”

Geopolitically and economically, Australia remains a beacon of stability. With deep trade ties to Asia, especially China and India, Australia is well-positioned to benefit from demand in the region, even as Western economies face slowing growth. “Our proximity and deep trade relationships with Asia offer structural tailwinds that are difficult to replicate,” Datt noted. “Add to that a stable political backdrop, and you have a very compelling case for Australia as a low-risk, developed-market destination.”

For investors seeking a defensive posture with potential upside exposure to global growth and commodity demand, Datt believes Australian equities will continue present a highly attractive proposition.

“We believe Australian equities are well positioned to outperform over the medium term,” he said. “In a world of uncertainty, Australia’s relative stability and value are becoming increasingly attractive.”

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Emanuel Datt

Boutique Australian equity investment manager Datt Capital has had its two funds – the Datt Capital Absolute Return Fund and the Datt Capital Small Companies fund – added to the HUB24 platform, boosting their accessibility to a wider financial advisery and wholesale audience.

“We are delighted to have these funds now available on HUB24. Previously, access was limited to qualifying wholesale or professional investors. This inclusion significantly expands the reach of our market leading investment strategies, allowing a wider range of investors and financial advisers to benefit from our expertise in these asset classes,” Emanuel Datt, chief investment officer, Datt Capital, said.

The Datt Capital Absolute Return Fund was launched in August 2018, while the Datt Capital Small Companies Fund, which seeks to benefit from the insights gained through the management of the Datt Capital Absolute Return Fund and invests in emerging small cap companies, was launched in October 2023.

The Absolute Return Fund seeks to minimise the risk of permanent capital loss, achieve an absolute return throughout the economic cycle and temper the market risks typical of equity funds.

“We believe utilising a multi-asset approach reduces downside risk and volatility in returns,” Datt said.

The Datt Capital Small Companies Fund aims to capture alpha from companies outside the ASX/S&P100 and invest in smaller capitalised companies that have the potential to grow at above market rates. It invests in 15 to 25 Australian listed companies outside the S&P/ASX100 index and pre-IPO equities.

“Both these funds have strong track records. The Datt Capital Absolute Return fund delivered investors 38.45% returns in the last financial year. The Datt Capital Small Companies fund also delivered 30.34% to its investors over its first full year of operation to October last year,” Datt said.

HUB24 is one of the biggest platforms in Australia with total funds under administration of $120.9 billion as at end of December 2024 with 4886 financial advisers using the platform.

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