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XJO outperformer’s new strategy now that era of growth ‘is over’

June 1, 2022

XJO outperformer’s new strategy now that era of growth ‘is over’

As interest rates chase inflation higher, Capital H Management’s Harley Grosser expects the era of growth at any cost – which defined the past decade – is coming to an end.

As interest rates chase inflation higher, Capital H Management’s Harley Grosser expects the era of growth at any cost – which defined the past decade – is coming to an end.

Instead, investors will be on the prowl for businesses he described as ‘cash machines’ – “businesses which can generate predictable, sustainable cash flows, that have pricing power, and can sustain their margins”.

In the past eight months, Mr Grosser has put his money where his market view is, telling Reach Markets there has been “a lot of movement” within his funds’ portfolios designed to take advantage of this new paradigm.

“We’ve moved away from a 0% interest rate environment. I think some of the impacts of the Russia-Ukraine conflict are going to last longer than people anticipate and bring opportunities in commodities and also businesses linked to commodities,” he said.

“But probably the main big-picture change that I see is that the last decade has belonged to growth stocks – everyone’s wanted growth because growth is scarce and when something’s scarce it trades at a premium.

“My view is that the next decade is going to belong to what we call ‘cash machines’.”

Inflation plays a big role in this view. Mr Grosser – whose fund has outperformed the ASX 200 by more than 90% over the past four years – said that even if current inflation rates don’t worsen, investors won’t want to hold cash during an already inflationary period.

Instead, Mr Grosser said investors will want to hold assets with “predictable, growing earning streams” – something the so-called cash machine businesses can offer.

“That’s the top-level thinking that’s framed our portfolio, and we’ve pretty much now fully invested in portfolio businesses that are either cash machines, commodities businesses – we see a lot of opportunities in commodities – or businesses that are exposed to a possible commodities boom,” he said.

“What’s exciting is that, because the market has been hammered so much and people are nervous, those businesses are trading on what I think are really cheap multiples.”

Join Harley Grosser this Friday, 3rd June, at 12pm (AEST) on our weekly The Insider: Meet the Fund Manager webcast to hear him talk about his favourite stocks, investment strategy, market insights and more. There will also be an opportunity to ask questions during the session. To book yourself in, click here.

 


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