Ausbil’s Paul Xiradis upbeat on outlook for Australian shares

Ausbil co-founder Paul Xiradis. Picture: Jane Dempster/The Australian.

Paul Xiradis says the Australian stock market will outperform world markets this year.

The Ausbil Investment chief accepts the near term uncertainty of budgets, elections and war and the market’s propensity to climb a wall of worries, but he says Australia’s potential on in the green space and its strong economy will underpin earnings and stock market performance.

“There are a number of drivers which suggests Australia should actually outperform. I think it will from an economic perspective. I think it will from an earnings growth perspective. Interest rates will go up and inflation will go up in this country but nowhere near as much as other parts of the world,” he says.

Xiradis speaks to The Australian on the anniversary of the business he founded 25 years ago. Ausbil is a tightly run active fund manager with $15.8bn in Australian and global equities investments for institutions and retail investors.

Behind the Xiradis optimism is the upside for Australia in energy transition, a story he says has not been fully understood or appreciated. “Australia has proven it can provide a number of solutions to the electrification and decarbonisation outcome. Think about future facing metals such as lithium. Not many people know Australia is one of the leading nations in the world of hard rock lithium production,” he says.

Add copper, nickel, rare earths, coking coal and gas as the world’s transition fuel and Xiradis argues that the potential to develop and export these assets sets Australia apart.

Despite this week’s Federal budget largely ignored business calls for immigration and support for tourism, Xiradis believes open borders will change the environment. “I think there’s people just lining up to come to this country.”

Among Ausbil’s top ten holdings are BHP, two big banks, Santos and rare earths miner Lynas. He clearly believes he is on the money.

“We are quite heavily exposed to the listed banking sector and banks and insurers should be net beneficiary with rates increasing again, and that’s another form of earnings growth.” All good for Australia.

“The level of inquiry that I’m getting from our international investors, past, and also still present, has actually stepped up quite dramatically.”

Ausbil is owned by its employees and New York Life Investment Management. After 25 years Xiradis, an untreated workaholic, still trades every day. “I’m still on the tools. Tend to be the first in most mornings and put in those longer hours. But I love what I do, it’s in my blood.”

Ausbil was an early adopter on ESG, introducing a sustainable investment policy in 2007 and in 2015 hired Mans Carlsson to run ESG Research. Xiradis says an ESG focus can help identify risk factors before it is obvious to the markets. “It is also another proxy to us in the sense of quality of management in running those organisations,” he says.

Ausbil co-founder Paul Xiradis. Picture: Jane Dempster/The Australian.

Xiradis fully backs oil and gas providing there is a credible path to lower emissions. He says Ausbil sees itself as an ESG influencer working behind the scenes.

Last week, Santos made a major new oil discovery off the Australian coast. “Santos is the A team of the oil market. That wasn’t the case some years ago, but they have been proven to manage the business very effectively. They bought assets well and then also very focused on reducing their carbon footprint,” says Xiradis.

The crisis in Europe has made the search for alternative energy more urgent. The other issue emerging in Europe is national security. “Military spending is going to increase as well, which I think is also going to be quite supportive for metals,” he says.

Ausbil picked up a sizeable stake in Lynas at a price in the low twos and perhaps just under $2.00. Shares today trade above $10.

“Lynas is a leader in its field and incredibly well managed, but it is also really in its space right now: renewables, electric vehicles and defence. China is a major producer of rare earths. And Lynas number two globally,” Xiradis says.

Looking back over 25 years, the toughest period was the GFC even though Ausbil, which Xiradis says performs best in a crisis had one of its best years. However its major stakeholder Dexia came under serious financial stress. Suddenly Ausbil had to find a new partner in New York Life.

Xiradis credits the firm’s success to a boutique culture where the investment team are also stakeholders. He says the key is the investment process and a strong eye on clients and compliance.

“You know it’s not an easy game managing money. We are very proud to have consistent level of delivery of outperformance. There tends to be very little shocks in the sense of outcome. And we have delivered in periods where there’s a lot of uncertainty,” he says.

The 2001 Dotcom crisis presented opportunity and twenty years on Xiradis is grappling with a new crop of high growth tech stocks with no earnings in sight. There have been fails but good wins in healthcare and fintech, including buy now pay later firm Afterpay.

“We did very well out of that. We studied Afterpay when it was a minnow in our micro cap fund, then into our small cap fund, our mid cap fund and eventually into our large cap, so we across the journey understanding it and also understanding the risks.”