More market volatility to come’: Argo Investments

Argo Investments says market volatility was too low in recent months, as the group maintained its dividend despite a profit drop on lower income.

Argo Investments boss Jason Beddow. Picture: Supplied

Sharemarkets could be at a turning point following months of too-low volatility, with a bumpier ride in prospect for the rest of the year, according to Argo Investments.

Speaking to The Australian after handing down a 7 per cent drop in full-year profit, the listed investment company’s managing director Jason Beddow says inflation, interest rates and geopolitical tensions would dominate market sentiment in the coming months.

“We’re definitely into a more volatile period as people whipsaw on what happens with rates, economies and anything geopolitical,” he said.

“So you would expect a bit more volatility … we thought there was too little. I think the CBOE volatility index being higher and a bit more volatility is not unexpected. It may be a turning point.”

Mr Beddow’s comments came as the S&P/ASX 200 index tumbled 3 per cent in early trade on Monday, with $82bn wiped off the market as weaker-than-expected US jobs data fuelled recession fears.

Within the first hour of trading, the S&P/ASX 200 index tumbled 235.7 points, or 3 per cent, to a five-week low of 7707.50, in the worst one-day fall since a 3.6 per cent closing drop on June 14, 2022.

Argo Investments says market volatility was too low in recent months, as the group maintained its dividend despite a profit drop on lower income. Picture: Paul Miller/AAP Image

For Argo, any opportunity to take advantage of volatility would be “very stock specific”, Mr Beddow said, noting elevated valuations already in the market.

“The banks are pretty expensive, consumer stocks have run hard. Materials are pretty tough, depending on China’s (outlook). A lot of the good stocks have already run really hard,” he said.

Healthcare stocks, meanwhile, which have largely been shunned this past year, could now be close to the bottom, he added.

Argo maintained its final dividend this year despite suffering a profit decline on lower investment income.

For the 12 months through to June 30, the 78-year-old LIC delivered a $253m profit, down 7 per cent from $271.7m the year prior, as overall investment income fell, including in major holdings BHP, Rio Tinto and Woodside Energy.

Income generated from option writing and trading activities also declined, Argo said on Monday.

Despite the profit drop, the LIC declared a 18c per share final dividend, bringing the full-year payout to 34.5c, in line with the previous year.

Argo’s investments returned 11 per cent for the year, after costs and taxes, compared to the broader index’s 12.1 per cent over the same period.

Holdings in several healthcare stocks and APA Group, its underweight exposure to the big four banks, and not owning industrial property giant Goodman Group all contributed to the underperformance.

Clarity Pharmaceuticals was the biggest positive contributor to performance, with the company’s share price gaining 677 per cent in the year.

Mr Beddow expects the worst may be over for the healthcare sector, which is battling inflationary pressures and lower patient numbers, but he doesn’t expect it to “come roaring back”.

“I think they’re through the worst of it, we’re just not quite sure what the trajectory out is. Is it a bit of an L shape, so they sort of bounce along the bottom? That’s quite different to ResMed, which had a stellar result on Friday and is one of the few stocks trading higher in today’s session,” Mr Beddow said.

Argo shares were down 1.7 per cent in midday trade.