Top fund manager Forager looking for beaten down shares
Top-rated fundie Steve Johnson says volatility is ‘ammunition for some new ideas’ and still sees plenty of opportunities to make money in some overlooked parts of the market.
Australia’s top fund manager says there is plenty of money to be made at the smaller end of the sharemarket, as he called out potential opportunities in the beaten-down payments sector.
Forager’s Australian Shares Fund was crowned the best fund for the 12 months to March 31, according to Mercer’s latest Investment Survey, trouncing the competition with a 21.7 per cent return for the year.
The next best performer, the Chester Opportunities Fund, was a distant second with returns of 13 per cent.
Forager chief investment officer Steve Johnson said his fund had been nimble in the recent bout of volatility, stepping in to deploy a portion of its cash pile amid investor pessimism.
But already the calmer sentiment of recent days has seen the fund take a portion back off the table again.
“It might just be one of those environments where we’re doing things on a stock-by-stock valuation basis, and some of our favourite ideas have bounced back pretty quickly,” Mr Johnson told The Australian.
“There’s a bit of ammunition there for some new ideas. And we’re trying to be really, really disciplined about things that are not working in our portfolio and making space there for things that we’ve got more confidence about.”
The hard-hit payments space is one area where he sees returns potential.
“(Payments companies) have probably been sold because people are worried about the economic cycle. There’s also an RBA and government review into payment surcharging going on. So there’s a lot of noise and concern around that sector.
“For us, it’s probably not going to be as economically cyclical as people think. We’re looking for opportunities where the share price is down a long way,” he said.
The fund owns Cuscal, which debuted on the ASX at $2.50 a share in November, hit a high of $2.76 in February and is now back at $2.50. It also owns EFTPOS terminal operator Tyro Payments, which is down 12 per cent calendar year to date and has lost 80 per cent of its value since listing on the ASX six years ago.
The Reserve Bank is part-way through a review of the payments system and card surcharges consumers pay at the point of sale.
Mr Johnson said he expects card surcharges to be banned in the near term. The Federal government has indicated it will move to ban the surcharges by 2026.
“Our view on both (Cuscal and Tyro) is they’re pretty essential infrastructure. Tyro’s historically been a growing, successful business without surcharging. … I’m pretty confident that the payment terminal providers are not the ones over earning in this whole (surcharging) charade, so we think those businesses are pretty well placed to navigate that. And the share prices have been absolutely hammered,” Mr Johnson said.
Other beaten-up former darlings on his watchlist include Johns Lyng and PWR.
Among Forager’s winners over the past year were sports analytics play Catapult, which surged 125 per cent, Bravura Solutions, up 65 per cent, and RPM Global, up 30 per cent.
The core of the portfolio is in resilient, recurring revenue businesses that are not widely exposed to the economic cycle.
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