Mark knight

Ausbil Investment Management Limited (Ausbil) is pleased to announce the launch of its fourth exchange-traded fund (ETF) this year, the Candriam Sustainable Global Equity Fund – Active ETF (ASX: GSUS).

Ausbil has launched GSUS in response to investor demand for an actively managed portfolio of best-of-sector listed sustainable equities from around the world.Ausbil and Candriam are related through a shared parent company, New York Life Investment Management LLC. This relationship enables Ausbil to provide access to Candriam’s global equity strategies in an ETF structure suited to Australian investors.

“Candriam’s investment process combines company level research with top down sectoral analysis to select stocks demonstrating good Environmental, Social and Governance (ESG) characteristics, according to Candriam’s ESG framework,” said Mark Knight, Chief Executive Officer, Ausbil. “We are excited to broaden access to Candriam’s sustainable global equity strategy, responding to the growing demand from investors seeking a more convenient and efficient way to invest in our sustainable investment solutions.”

“We believe Candriam’s sustainable investment approach provides a distinct competitive advantage,” said Paul Xiradis, Executive Chairman, Chief Investment Officer and Head of Equities at Ausbil.

The Fund is certified by the Responsible Investment Association Australasia (RIAA) for integrating ESG and sustainability objectives across its portfolio and stewardship practices.

This marks Ausbil’s fourth ETF launch in 2025, following the recent launch of the Ausbil Active Dividend Income Fund – Active ETF (ASX: DIVI), the Ausbil Global SmallCap Fund – Active ETF (ASX: GSCF), and the Ausbil Global Essential Infrastructure Fund (Hedged) – Active ETF (ASX: GHIF).

Candriam stands for “Conviction AND Responsibility In Asset Management” and manages approximately EUR$156 billion in assets globally, as at 30 June 2025.

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Paul Xiradis

Ausbil Investment Management Limited (Ausbil) has been awarded the prestigious Fund Manager of the Year honour at the 2025 Zenith Fund Awards, cementing its position as one of Australia’s leading active investment managers.

The award recognises the firm’s market-leading performance, depth of investment expertise and commitment to delivering outstanding outcomes for investors.

Ausbil was also the winner in two additional categories:

• Australian Equities – Small Cap, and
• Sustainable and Responsible Investments – Growth.

Paul Xiradis, Executive Chairman, Chief Investment Officer and Head of Equities at Ausbil, said the recognition reflects the consistency of Ausbil’s investment approach over time and its strength through market cycles over the past 28 years, underpinned by an experienced team and strong investment culture.

“This award reinforces what has guided Ausbil since inception in 1997, which is a disciplined focus on quality, fundamentals and teamwork. Markets change, but our active approach remains constant. Our teams work every day to uncover investment opportunities through deep research and rigorous analysis, and this recognition is a credit to that effort,” Mr Xiradis said.

Mark Knight, Chief Executive Officer at Ausbil, added: “The award highlights Ausbil’s enduring focus on long-term outcomes. To be recognised as Fund Manager of the Year is a huge honour, and we’re proud to be recognised among Australia’s best.”

“The award reflects the quality of our people, the strength of our process and the trust placed in us by our clients,” Knight added.

The Zenith Fund Awards celebrate excellence across Australia’s investment management industry, recognising fund managers who demonstrate strength across philosophy, process, people, performance and organisational quality.

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Paul Xiradis

While the market remains bearish for financial year 2025, our view is for positive earnings growth in FY25 and into FY26. We believe earnings growth will recover in FY25 more than the market expects – broadening across sectors, and moving down the market cap spectrum.
(Current market consensus shows almost negligible earnings growth (EPSg) for FY25 followed by two mid-digit EPS growth years of +8.0% and +5.0% for FY26 and FY27 respectively.)

Ausbil is of the view that expected EPS growth will improve in an easing environment with no recession, improving economic growth and near full employment.
We see relief for balance sheets and income statements from a number of factors. We expect to see the RBA commence easing their monetary policy in 2025, joining the Fed, ECB and other developed markets. This will add relief on cost of debt and rollovers.

As inflation has been falling this will also add positively to income statements. Wages are still relatively in control.

On the impact of China, the September surprise rate cut of 50bps and the promise of further stimulus and support as needed has helped to stabilise the outlook for China leveraged companies.

The US election outcome with the return of President Trump was welcomed by the market on pro-business policies compared to higher taxes and other restrictions under the alternative. From an earnings outlook perspective, the US economy is expected to perform well under Trump in 2025, and onshoring policies and protection should be beneficial for the US economy.

However, the prospect of a trade war with China and Europe with rising tariffs could be a significant risk to earnings in a number of China facing sectors, including those whose manufacturing base is in China, and those that sell to China including resources. We are monitoring these risks closely, but earnings growth should benefit overall with a pro-business US government.

Australia is also expected to benefit from its growing export exposure to the Indo Pacific (ex-China) region with growth rates currently running in the range of 5% to high 6% for India, Indonesia, the Philippines and Vietnam.

By way of background information, in September 2022 Australia joined the Indo-Pacific Economic Framework (IPEF) alongside 13 members from across the Indo-Pacific region, including Brunei Darussalam, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Republic of Korea, Singapore, Thailand, the United States and Vietnam. The region accounts for around 40 per cent of global GDP and includes eight of Australia’s top ten merchandise trading partners.
In terms of unpredictable risks, geopolitics is probably the most relevant. War in the Middle East remains a risk to the price of oil and supply chains. The war in Russia and Ukraine carries some existential nuclear risks. These risks are unpredictable, but at this stage we do not expect material market disruption. Further, under Trump we expect these risks to dissipate.

Opportunities

We believe decarbonisation and the energy transition remain significant themes that will drive value across resources, energy, utilities and the mining services sector with respect to critical commodities.

The rapid normalisation of rates in 2023 and 2024 was especially punishing on commodities given the impact this had on slowing economic growth. However, as we had been forecasting, the economy did not enter recession, growing at a sub-trend positive through 2024. With an outlook for improving growth in 2025, we are starting to see commodities shifting upwards again.

Copper is expected to see major demand upside from decarbonisation, a three-fold build out in global grids by 2030, increased demand from data centres with booming AI, and increase demand for EVs and battery storage.

Though it has had a tough 2024, we still expect lithium to see major demand growth alongside rare earths for battery storage and the electrification of things. Companies such as IGO, Pilbara Minerals, Lynas Rare Earths and Sandfire Resources will benefit from this demand. So will BHP and RIO which have major copper divisions.
As the world increasingly looks at the potential for nuclear energy to underpin the base load transition, supporting uranium as an energy source with much lower operating greenhouse gas emissions than traditional fossil fuels.

In bulks, we see ongoing demand from China for iron ore, growing demand from India for metallurgical coal, and global demand for steel, including US demand from stronger housing, decarbonisation infrastructure, renovation and remodelling.

The market is showing a wide dispersion of opportunities, and many in companies that are globally facing and market leaders in their sectors.
With an improving growth outlook, we are seeing opportunity in cyclical names. This includes resources as I have noted, the construction materials and consumer discretionary sectors. We have been incredibly selective in theses cyclical sectors, with names such as Wesfarmers, James Hardie in construction materials, and Aristocrat Leisure.

Banks tend to be a good proxy for the economy. With economic growth improving and the potential for monetary easing to support consumer spending, we think that some exposure to the best bank and diversified financials is important in 2025. We are overweight in names like National Australia Bank and Macquarie Group.

With respect to the outlook for lower rates in 2025, we are seeing opportunities in real estate in an environment where cap rates are likely to compress albeit moderately. Real estate has benefited from rental ratchet clauses that capture inflation upside, and will continue to benefit from higher rents in a lower inflationary environment, however the sector overall has been in a long structural adjustment following the rapid adoption of online since then pandemic. Goodman Group has been a preferred real estate exposure given that it is benefiting from two major thematics, the rise of smart logistics warehouses for online fulfillment and distribution, and the rapid uplift in demand for data centres.

On key thematics, in technology we are seeing structural earnings growth in technological transformation, the rise of artificial intelligence (AI), and the enablers and businesses that increasingly operate in the digital environment, including communications companies.

The current secular expansion of data, cloud computing, AI and storage is driving huge investment in the enablers of change. This includes semiconductor providers like NVIDIA and BE Semiconductors, a sector not available in Australia. However, other areas include data centres, energy and energy storage that back-up data processing, telecommunications and internet companies that support the web of connectivity and data. Examples of companies that stand to benefit include NextDC and Telstra.

The companies that stand to benefit from this technological enablement are those that can leverage the networking and processing power offered by enablers to capture more business, more customers and at lower and lower costs. Examples of such companies include Block, REA, Life360 and WiseTech.

There are always quality names in our portfolios that manage to consistently grow earnings, such as CSL, Xero and REA Group.

Overall
We believe the market will trade higher next year, driven by lower rates, improved earnings, and the macro-economic outlook, with the possibility of increasing corporate activity.

For companies with positive earnings growth outlooks that exceed consensus, it is definitely ‘risk on’.

Consensus currently has low expectations for FY25 earnings growth in a market which is likely to be positive for business. We think that earnings will be better than expected by the market for FY25, and we are less focused on defensive names and more invested in growth and cyclical names to take advantage.

By Paul Xiradis, Executive Chairman, Chief Investment Officer and Head of Equities

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Ross Youngman

Ross Youngman will retire in the third quarter of 2023, succeeded by Mark Knight.

Youngman has served as Ausbil’s CEO since 2017 after joining the firm in 2015. During his time, the firm has successfully introduced new global strategies, business systems and he has overseen the growth in funds under management.

During his career, Youngman has held a variety of senior management roles including CEO of both Five Oceans Asset Management and Deutsche Asset Management in Australia.

Mark Knight, Director and Head of Distribution has been appointed CEO designate and will assume full responsibilities effective 1 April 2023. Knight has 30 years’ experience and has held senior positions at Ausbil since 2004.

Ausbil will initiate a search for a Head of Global Distribution capable of implementing Ausbil’s domestic and international distribution strategy. In addition to its well-regarded Australian equity products, Ausbil has a track record in global asset classes including infrastructure, small cap and resources. It’s continuing ambition is to build the Ausbil profile both within Australia and internationally, including jurisdictions such as the USA and Europe.

Paul Xiradis, Executive Chairman and CIO, said, “We’re totally committed to our clients and the investment performance we’re creating for them. No change there. These developments are consistent with that as well as allowing for the careful growth of our global products.”

“On behalf of our executive team and staff at Ausbil, I would like to thank Ross for his leadership and wish him all the best for his well-earned retirement,” Xiradis added.

In announcing his retirement, Ross Youngman said, “It has been very satisfying to work closely with our clients, both domestically and internationally, and the talented group of executives during my time at Ausbil. I wish the firm and my colleagues all the very best for the future.”

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John Grace

Ausbil Investment Management is proud to announce that it has achieved the milestone of 25 years in investment management. Founded in April 1997, Ausbil now manages over $16.9 billion (as at 31 March 2022) in active Australian and global equity investments. Ausbil’s investment team comprises 33 investment professionals including a chief economist who directs Ausbil’s macro view, a leading ESG research team, and a strategic partnership with Fortune 100 company, New York Life.

Deploying its ‘core’ investment style and headed by Paul Xiradis, Chairman and Head of Equities, Ausbil has built an outstanding track record in large cap Australian Equities delivering +11.5% p.a with an excess return of +3.0% p.a (gross of fees) since inception in 1997. Capitalising on this strength, in more recent years, Ausbil has successfully introduced Concentrated, 130/30 Active Extension, Dividend Income, Active Sustainable and Long Short investment strategies.

Ausbil has also developed an outstanding Australian Mid and Small Cap business headed by John Grace, Co-Head of Equities. It includes ‘Emerging Leaders’ (ex 50) established in 2002, ‘MicroCap’ (ex 200) established in 2010 and ‘SmallCap’ (ex 100) established in 2020.

“We have invested through many ups and downs and the consistent application of our earnings and earnings revision process has served us well. Probably though, the most significant trend we have seen is the shift to responsible investing and ESG,” says Xiradis. “Now, more than any time in the past, sustainable factors are forefront in the minds of investors”.

In more recent years, under the leadership of Ross Youngman, CEO, Ausbil has set up global investment strategies so as to better fulfil client portfolio requirements and to enable the organisation to capture client interest in global regions such as the US, UK, Europe and the Middle East.

“Investment management is a global business and although we have offshore clients in Australian equities, we wanted to extend the brand further. Ausbil’s inherent stability and investment platform has been the perfect launching board for our global teams. Now that we’re through the initial 3 years, momentum is impressive, and the New York Life distribution footprint is kicking in for us.”

Ausbil now has over a 3-year track record in Global Essential Listed Infrastructure, Global SmallCap and Global Resources Long Short. Each strategy is managed by a dedicated, stand-alone investment team.

“If I shared one insight from my last 25 years in investment management, I would say that, first and foremost, it is the people that matter most to investing successfully,” says Xiradis. “I am proud of the track record produced by our investment team alongside the ever-reliable support of our business services and distribution teams. It’s a team effort, no doubt about it”.

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Paul Xiradis

The world is now in the process of controlling COVID-19 with a range of tested vaccines just over a year on from the original declaration by the World Health Organisation on 11 March 2020 that COVID-19 was officially designated a ‘pandemic’. This is a remarkable achievement even though control of the virus remains a challenge.

We expect to see an acceleration in global growth to 6.6% in 2021, with the US set to grow 7.0% in 2021.

China was the first nation to emerge from lockdown in 2020. China is consolidating growth in the domestic economy and is expected to print an economic growth figure of  8.2% in 2021.

Advanced economies are forecast to grow at multiples of their 10-year average, with Europe emerging from a double-dip recession caused from its second lockdown. Ausbil is expecting  the Eurozone to grow by 4.7% in 2021.

Of all the pandemic stimulus packages, the US was far-and-away the largest, with the level of US fiscal support during the pandemic, so far, totalling US$5.2 trillion, 24.6% of nominal GDP, or three times the fiscal support given during the 2008 financial crisis. In addition, the Federal Reserve’s open-ended QE program is providing monetary support to the tune of 11% of nominal GDP to date. Ausbil’s current economic outlook is summarised below.

Risks

There are a number of risks to Ausbil’s outlook. Recently, markets have been concerned about  a permanent rise in inflation, what the recent rises in bond yields might mean for more persistent inflation, and the risk it poses to interest rate levels.

These fears are also caught up with concerns around any earlier Fed response than expected, or any tapering of QE sooner than expected, that is, before the 2024 milestone, which has been set based on the emphatic and repeated comments by both the Fed and the RBA. These risks are associated with an economic rebound that is too successful, or successful too quickly.

There are three conditions required before there is a lift-off in rates. Firstly, there needs to be a labour       market that is at maximum employment. Secondly, inflation needs to have been at ~2% for at least a year. Finally, the level of inflation needs to be on track to exceed the 2% level “for some time,” as noted by the Fed. These three conditions have never been simultaneously met in recent history.

Another risk is that growth actually underperforms, and the rebound is less than successful due to new COVID variants outpacing the efficacy of the current stable of vaccines. There also remains unquantifiable geopolitical and trade risks around the world, including the potential for regional conflicts in Iran/Israel, China/Taiwan, Russia/Ukraine, and now with actual conflict in the Middle East.

Ausbil’s view is that economies will run ‘hot’ for some time, with the support of policymakers, and are delivering the best growth figures since 1983, across a multi-year growth profile, as illustrated in the table above.

While inflation will remain an ongoing source of worry as the perennial flipside to growth, it is important to understand when inflation spikes are intermittent or if they are moves to a higher sustained level. It is our view, and indeed that of most global central banks, that inflation will not be a problem for some years as the world economy returns to health.

We see inflation remaining within  target ranges for some years, and cash rates on hold until 2024, with long bond yields to adjust over these years in an orderly fashion. Australia’s economic growth, and the current resources boom, will underpin the Australian dollar, with Ausbil forecasting the AUD/USD in an up-trend: 75-80c for 2021, 80-85c in 2022, and 85-90c in 2023.

This low-rate environment, and the multi-year economic growth outlook, is supportive of an underlying multi-year growth outlook for equities, especially in cyclical sectors, banks and in resources as world demand grows.

Earnings surprises

Two key sectors where we see further earnings surprise are the banks and resources sectors.

Banks, which offer primary exposure to a recovering economy, entered the pandemic after heavy barrage from the Hayne Inquiry and having already been sold down. The pandemic saw them sold down further on fears that the recession and COVID job losses would impact their lending books. All the banks provisioned majorly for the potential for credit loss, and APRA further enforced capital retention through limiting the dividends they were allowed to pay. Looking at the banks in the 2021     New Year, it was evident that the bad and doubtful debt experience was nowhere near predictions, and that the banks had over-provisioned for losses. With APRA allowing a return to more commercial             dividend levels, and the economy resurging from the 2020 lows, we could see banks were in a position to reduce these provisions and grow their books further in a renewing real estate market. The result is that over the next few years, the unwind of this over-provisioning will see a rerating of earnings, ahead of the consensus expectation at the time we began up-weighting into banks.

Metals and mining are in the midst of two fundamental themes in global resources investing. The first is the super-cycle demand for Australia’s bulk commodities including iron ore, from China in terms of building and infrastructure demand, and as a function of the growth path of the world economy. This theme is expected to drive earnings in companies like BHP, Rio Tinto and Fortescue Metals. The second is the fundamental shift in the energy transition to renewable energy, and the rapid adoption of electric vehicles, which is sparking a secular demand for bulk, base and battery materials (copper, lithium, cobalt, zinc, manganese and rare earths) that is expected to last for decades, underwriting the fundamentals of a strong resources market. This long secular ‘electrification’ demand is forecast to drive earnings in companies like Galaxy, Orocobre and IGO (in lithium), OZ Minerals (in copper) and Lynas Rare Earths.

Ausbil has been overweight banks and resources (metals and mining) for some time. These overweights remain in place across our portfolios and have driven outperformance across our different strategies. Importantly, we are still in the early stages of the economic cycle, with a positive growth outlook for multiple years that is expected to drive performance in these mega-sectors.

The portfolio is also tilted towards rebound stocks in travel and recreation (such as Qantas and Webjet) whose earnings are returning following the implementation of global vaccinations, as well as high quality industrials and healthcare names (like Ramsay Health Care) which are primary beneficiaries of economic recovery.

Where next?

Since the historic reversal in consensus across the February reporting season that saw the FY21 consensus earnings outlook for the broad market rebound from -1.6% to +15.6%, consensus earnings outlook for both indices has rerated to +19.08% (S&P/ASX 200) and +19.02% (S&P/ASX 300).

While these earnings figures are strong, Ausbil’s house view is that consensus is still under-estimating the rebound in earnings that will occur in the prevailing economic conditions, with rates to remain low, and with the world economy providing a tailwind to Australia’s current expansion.

In terms of the market itself, there are three important observations that can be made when looking at the earnings growth and levels. The first is that the consensus earnings outlook regularly misses the actual earnings by some margin, as illustrated by the blue and red bars in the chart. Moreover, in the expansion phase of 2004-2007, consensus significantly and consistently undershot actual EPS growth. What is interesting about this period is that it shows a multi-year expansion period of year-on-year positive EPS growth that could be similar to the period of earnings expansion we have just entered in 2021.

The second observation is that since the GFC, aggregate earnings have moved sideways, within a range. Market performance has been driven by significant P/E expansion in this time rather than earnings expansion. Ausbil’s outlook is for the return of strong multi-year earnings over the next 2-3 years, and possibly beyond.

Finally, markets are volatile and can rise and fall on anticipated and unanticipated information. However, comparing the market and EPS levels in Chart 3 over time shows that markets tend to rise when earnings are in a rising pattern, or conversely, the market is unlikely to fall significantly when it is in an earnings upgrade cycle.

Ausbil’s portfolios have been positioned for a clear path to recovery, but with some volatility and uncertainty along the way. We are expecting a multi-year earnings growth cycle, and we maintain the position that investors are compelled to participate. While we maintain a positive outlook on earnings, this is still a time to invest in only the best quality companies, which exhibit superior underlying earnings growth and strength, in order to achieve longer-term outperformance.

Comments by Paul Xiradis Executive Chairman, Chief Investment Officer, Head of Equities and Jim Chronis, Chief Economist

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Paul Xiradis

Ausbil has been named the winner of the Responsible Investments award category in the Zenith Fund Awards 2020 for the Ausbil Active Sustainable Equity Fund (Fund).

“We are delighted to be recognised by Zenith with this award,” says Paul Xiradis, Executive Chairman, Chief Investment Officer and Head of Equities at Ausbil. “We feel so strongly about   the benefits of investing responsibly that we have for many years integrated ESG across all of our investment strategies, with ESG consideration built into our investment process.”

The Ausbil Active Sustainable Equity Fund is a true-to-label sustainable and responsible investment fund that actively engages companies, within its universe, to improve on all measures of ESG, and actively exercises its voting rights accordingly.

Ausbil was early in seeing that the only way forward in active investment was to integrate ESG in the firm’s culture, approach and decision making. Excellence in corporate governance (G) has always been a critical consideration in Ausbil’s process, from the very beginning in 1997. Over 10-years ago, Ausbil added environment (E) and social (S) considerations to the investment process, bringing together the full ESG approach across all funds.

“What gives our Active Sustainable Equity Fund its edge is our top-down bottom-up investment approach, our reach into the boards and management of Australia’s leading listed companies, and the depth and quality of our ESG research team,” says Nicholas Condoleon, Portfolio Manager  of the Ausbil Active Sustainable Equity Fund and Head of Research at Ausbil. “We believe our active engagement with these companies helps us achieve better risk-adjusted outcomes,” says Condoleon.

What has become apparent is that investing for sustainable returns with an ESG approach does not sacrifice returns, or cost the investor more, and may indeed enhance both the risk and return sides of the investment coin. “We believe, and we have seen this play out in our sustainable investment portfolio, that a sustainable approach reduces investment risks in a material way,” says Condoleon. “It also improves outcomes, especially in downside markets where sustainable companies are rewarded for their lower overall risk profiles.”

Ausbil’s ESG Research Team is led by Måns Carlsson, Head of ESG Research. “In our engagements we frequently encourage companies to adopt best practice in ESG risk management, which can in turn, help them become more sustainable businesses. That also helps increase the universe of companies in which we are willing to invest, and contributes to a better society.”

Genuine engagement means maintaining an ongoing conversation with a large number of companies in the potential investment universe, even when they currently have un-investable ESG scores. “We engage with companies for four key reasons,” says Carlsson. “Firstly, we want to protect invested capital. Secondly, we believe we can have a more positive impact on companies that are in dialogue with us than if we simply exclude them as pariahs. Thirdly, we want all companies to become more sustainable in their journey, and increase the universe in which we can invest. And finally, we need to understand the full distribution of ESG outcomes and behaviours to get a full picture of both ends of the curve, those we would never invest in, and those we believe are exemplary on an ESG basis.”

Ausbil is a PRI signatory and a member of the Plastic Solutions Investor Alliance. Ausbil also holds memberships with the Investor Group on Climate Change (IGCC) and the RIAA Human Rights working group. Ausbil is currently assisting the Australian government on the Modern Slavery Act. Ausbil’s ESG Research Team is actively engaged in deep collaboration across a wide range of ESG and responsible investing groups. Ausbil reports on all active collaboration in ESG and responsible investing regularly, summarising our engagement, advocacy and voting action in an extensive annual report, the most recent which can be found here.

The Ausbil Active Sustainable Equity Fund provides exposure to an actively managed portfolio predominantly made up of listed Australian equities which meet Ausbil’s sustainability approach to investing. The PDS can be obtained from our website at www.ausbil.com.au.

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Paul Xiradis

What is your outlook for the global economy and are governments and central banks doing enough to ensure an eventual economic recovery?

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Paul Xiradis

The macro, top-down view

“Our macro view ensures that we anchor to what really matters in markets regardless of the barrage of information and misinformation out there,” says Xiradis. “Working closely with our Chief Economist and our local and global equity teams, we are able to distil the macro signals that matter and work our allocations across sectors accordingly.”

Xiradis and his team at Ausbil see the following key signals for 2020 as being important for investors in setting their portfolios for the year ahead.

The economy

“We see interest rates, which have been the primary source of stimulus together with QE, to remain lower for longer, which is the key message we are reading in the pronouncements of global central banks,” says Xiradis. “We expect governments to add more fiscal stimulus to the macro equation, here and overseas, just as Christine Lagarde, President of the ECB, called for recently,” says Xiradis. “This could also include increased infrastructure spending. An Australian dollar trading in the range of 67 to 72 cents is likely to ensure commodities and other Australian exports remain attractive and support the local economy.”

GDP growth

“With this background of stimulus as context, we see the world, the US and Australian economies continuing on the growth path, delivering growth at trend in 2020,” says Xiradis. “The undeniable importance of China in this equation, and their ability to maintain growth is what will help support Australia and world growth, as we see China maintaining GDP growth of over 6% in 2020. Of course, this is predicated on China and the US reaching workable agreements on trade, but we think resolution will come faster the more the standoff hurts for both economies, especially given their recent phase-one agreement.”

Some risk in the economy

“There are clearly the typical geopolitical and economic risks in the economy that we monitor closely, the most salient we see as being the risk of deflation, the breakout of a currency war, and the risk that the US and China don’t finalise agreements on trade,” says Xiradis. “In terms of equity valuations, there remains a clear risk around any rise in official rates, but we have seen very clear intentions expressed by central banks that for the foreseeable future, rates will remain low or on hold. That said, a scenario where rates rise would likely align with more exuberant economic growth so in such an environment one would expect business to continue to thrive in a manner supportive of equities. We remain vigilant on the direction of rates and we are nimble enough to respond if we see any radical reversal of the prevailing view.”

The equities, bottom-up view

Company earnings growth

“Our bottom-up view for 2020 is for some moderate EPS growth, with the year remaining a stock-picker’s year, focusing on high quality companies that benefit from economic growth and a steady but lower AUD,” says Xiradis.

Resources

“We see resources as a potential highlight for 2020 with stronger EPS growth than for financials, REITs and industrials as they benefit from global stimulus, ongoing Chinese demand, and a preferentially lower AUD,” says Xiradis. “In the last resources boom, which peaked in 2011, mining companies invested large amounts   of capex in capacity. Now, these companies have excess capacity and lower capex expense which is translating into higher free cash flows and stronger earnings growth across the sector as the world’s demand for resources continues.”

Financials

“In 2020, we expect the implications from the Royal Commission to continue to roll through, with a relatively low growth in EPS for banks and other financials,” says Xiradis. “Mitigating this drag on earnings is the fact that the housing market bottomed in May 2019, and has shown strong resurgence through 2019, supporting more credit activity for banks, and a more buoyant consumer.”

Bond proxies

“Bond proxy stocks were beneficiaries of the Fed pivot in December 2019, and since then they have run hard and values are now stretched. With rates on hold and potentially still falling, these values remain high and we have reduced positions accordingly,” says Xiradis.

Industrials

“In this lower for longer environment, with a background of continued growth, we are seeing opportunity in quality industrials with lower multiples but a good EPS growth outlook, including cyclicals,” says Xiradis.

What is exciting in 2020?

“We see 2020 for the potential to find alpha in quality stocks that are benefiting from the background of lower rates and some stimulus,” says Xiradis. “The potential for resources in this environment is particularly compelling. We hope to see Brexit settle with the emphatic election of Boris Johnson as Prime Minister, and the potential for the US and China to resolve their issues in the 2020 election year, following their recent phase-one agreement,” says Xiradis.

“We expect to see Australia enter its 29th year   of uninterrupted growth without recession, and as markets stabilise a little, assuming no major geopolitical surprises, the stage is set for active managers to find more alpha generating opportunities. As a stock picker, this really excites me,” says Xiradis.

By Paul Xiradis, Executive Chairman, Chief Investment Officer and Head of Equities

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Paul Xiradis

Lonsec has awarded the Ausbil Active Sustainable Equity Fund as the winner of its Sustainable Investment Award.

The Lonsec Sustainable Investment Award seeks to recognise and highlight the work of asset managers and key players incorporating ESG into their investment approach to add value to investors.

An ESG (environment, sustainable and governance) approach, is integrated in Ausbil’s investment decision making process, driven by a focused ESG engagement team, and overseen by one of Australia’s most respected Chief Investment Officers, Paul Xiradis.

“We are delighted to be recognised by Lonsec with this award,” said Xiradis. “We feel so strongly about the benefits of investing responsibly, that we have integrated ESG across all of our investment strategies, with ESG consideration built into our investment process”

The Ausbil Active Sustainable Equity Investment Fund is a true-to-label sustainable and responsible investment fund that actively engages companies, within its universe, to improve on all measures of ESG, and actively exercises its voting rights accordingly.

“What gives our Active Sustainable Equity Fund its edge is our reach into the boards and management of Australia’s listed companies. Our active engagement with these companies helps us achieve better outcomes,” said Mr Xiradis.

Mr Xiradis’ track record is one of the longest in the country, the core active equity strategy starting in 1997. Mr Xiradis was early in seeing that the only way forward in active investment was to integrate ESG firmly in the firm’s culture, approach and decision making. Excellence in corporate governance (G) has always been a critical consideration in Ausbil’s process, from the very beginning in 1997. Over 10 years ago, Ausbil added environment (E) and social (S) considerations to the investment process, bringing together the full ESG approach across all funds.

Ausbil’s ESG Research Team, of three dedicated ESG Analysts, is led by the experienced Måns Carlsson-Sweeny. “In our engagements we frequently encourage companies to adopt best practice in ESG risk management, which can in turn, help them become more sustainable businesses. That also helps increase the universe of companies in which we are willing to invest, and contributes to a better society.”

“Every year we engage on ESG issues with Australia’s largest companies, which fundamentally improves the overall awareness of ESG in corporate Australia, and deepens our investment decision making process,” said Mr Carlsson-Sweeny.

Ausbil’s ESG Research Team has been actively engaging across all the ESG areas. Ausbil recently became the first Australian signatory to the International Declaration on Plastic Pollution (IDPP), has been actively engaging with resources companies on safe work and tailings dam safety, working with retailers on human rights in their global supply chains, raising awareness of sexual harassment, in advising on better climate related financial disclosures (TCFD), on governance practices and remuneration, and on fair wages for workers, amongst many other areas of action.

Mr Carlsson-Sweeny was commended this month by Anti-Slavery Australia for his work in promoting the cause of workers in worldwide supply chains who are subject to modern slavery and other degrading conditions.

Ausbil’s ESG Research Team is actively engaged in collaborating with a wide range of ESG and responsible investing groups. Ausbil reports on all active collaboration in ESG and RI regularly, summarising our engagement in an extensive annual report, the most recent which can be found here:
https://www.ausbil.com.au/Ausbil/media/Documents/Research%20and%20Insights/Ausbil-%e2%80%93-ESG-Engagement-Annual-Report-2018.pdf

The Ausbil Active Sustainable Equity Fund provides exposure to an actively managed portfolio, predominantly made up of listed Australian equities which meet Ausbil’s sustainability approach to investing. The PDS can be obtained from our website at www.ausbil.com.au

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