Perpetual boss Rob Adams sees 2022 as a stockpicker’s year

Rob Adams has rubbished the return prospects of index-hugging exchange traded funds in the short to medium term.

Perpetual CEO Rob Adams sees momentum continue into the second half.

Perpetual boss Rob Adams has rubbished the return prospects of index-hugging exchange traded funds in the short to medium term, declaring rising inflation and volatile markets will see value-focused stock pickers win out in the coming years.

Speaking to The Australian after handing down Perpetual’s half-year result, Mr Adams said it was a “flip of the coin” whether equity markets would be higher or lower by the end of the year, but warned volatility is a certainty.

“We’re set for a longer period of inflation, and generally inflationary environments suit value investing. Combine that with the market volatility that we’re seeing, which is intensified for geopolitical reasons and a bunch of other factors.

“We’re guaranteed to have volatility. Markets are going to be skittish, you’ll see overreactions and underreactions. That’s why stock picking, picking the eyes of the market, is critical. What I would not want to be doing is buying the index,” Mr Adams said.

“The last 10 years, it’s been easy to make money in equity markets. You could just buy the index and win. I think we’re about to enter a halcyon period for active management, where the best fund managers will show substantial outperformance over indices. As we should because that’s what people pay us to do.”

Lamenting the challenging few years in the era of easy money, Mr Adams said it had been “very difficult, particularly as a value manager to (outperform)”.

The fund is looking to capture a chunk of the ETF money flowing into the market by launching active ETFs: two of which it brought to market in December. More will follow, Mr Adams predicted.

“I can see a suite of four, five, six or maybe more, active ETFs, just because it’s a very easy channel for people to use. It opens up lines for us to direct investors and it’s a contemporary delivery mechanism.

“We will be launching more active ETFs quite consistently, at least a couple a year,” he said.

The acquisitive wealth manager is also eyeing the alternatives market, as it hunts for bolt-ons.

“Across our asset management business in both Australia and internationally, we are pretty light on in terms of anything we would describe as alternatives,” Mr Adams said.

“Investors the world over are increasing their allocation to alternative investments, so whether it be real property, private debt, or liquid alternative strategies in particular, we would be keen to add some alternative investment capabilities.”

On the prospect of any acquisitions, Mr Adams said Perpetual was “actively engaged” in a number of opportunities across its businesses.

“I would be hopeful that we can bed down another transaction this financial year, but that’s not guaranteed.”

The ASX-listed wealth manager on Thursday posted a net profit of $59.3m for the six months through December, up 113 per cent from the prior corresponding period.

Underlying profit, which excludes significant items, jumped 54 per cent to $79.1m, while operating revenue rose 37 per cent to $384.9m.

The result was driven by the full contribution from US firm Barrow Hanley, strong investment performance, higher average equity markets and continued growth in Perpetual Corporate Trust and Perpetual Private, the company said.

“We are delivering solid earnings growth across our business, with all four of our operating divisions demonstrating positive momentum,” Mr Adams said.

“We are making substantial progress in executing the group’s strategic priorities with both organic and inorganic investments supporting solid growth in underlying profit and improved returns to shareholders.”

The wealth manager entered the second half with ongoing positive momentum across each of our divisions, he added.

“We are confident that our strategy and evolving business model, along with our world-class investment capabilities and growth capacity, place us in a strong position to continue to scale globally.
Perpetual reaffirmed its fiscal 2022 operating expense growth guidance of between 18 and 22 per cent.

The company declared an interim dividend of $1.12 per share, up 33 per cent on the year prior.

Perpetual shares closed 1.2 per cent lower at $35.52 against a broader market decline of 3 per cent.