Odinian Beta

The penny has dropped and thanks to a three-letter word from the Federal Reserve’s recent interest rate decision (“any”), small caps both in the US and in Australia have started to rocket out of a long slumber. For most of the last 18 months, small cap performance at an index level has been smashed thanks to the soaring cost of capital. But now that markets have called central banks’ bluff, we’re entering what Ben Griffiths of Eley Griffiths Group calls a “pause rally” – the kind of rally that has a lot of cash looking for a new home.

“I’m not for a second suggesting that the lunatics are out of the asylum but there has been some stability and sentiment is such that you can sketch out a constructive path for equities. There’s a buoyant time ahead for us,” Griffiths said.

Another worthwhile indicator of the return of risk is the IPO market – and as Griffiths knows all too well, the phone calls have dried up considerably. And while the phone is not ringing off the hook yet, he does see some signs that listing activity is itching for a rebound.

“There were a number of IPOs that were slated for transacting and listing before Christmas that have now been pushed into March. These will be extra well sought after in March – or certainly pre-June 2024,” he said. 

In this, our second last episode of The Rules of Investing for 2023, James Marlay sits down with Griffiths for an extended conversation about the smaller end of the market. Hear about some of the companies that stood out from the recent AGM season, how Griffiths is investing in light of a “higher for longer” rate environment, and why he’s dipping his toes into a well-known company that fell from darling to dog.

Timecodes:

• 0:00 – Intro
• 1:15 – Three macro signals Ben pays attention to – and what these are saying about the markets
• 4:45 – Is risk back and is the “pause rally” underway?
• 8:44 – Was October 30th 2023 the day the market declared the war on inflation over?
• 10:16 – What are you hearing about the appetite for more ASX IPOs?
• 14:00 – What are the drivers of the divergence between large cap and small cap performance – and when will it turn?
• 18:00 – The ASX companies which stood out from the November AGM season – Breville Group (ASX: BRG), Boral (ASX: BLD), Ridley Corporation (ASX: RIC)
• 19:16 – Portfolio construction and stock picks for a “higher for longer” interest rate environment – Monadelphous (ASX: MND), ARB Corporation (ASX: ARB), Capricorn Metals (ASX: CMM), Genesis Minerals (ASX: GMD), Karoon Energy (ASX: KAR)
• 21:53 – Stocks where margins may have not bottomed out yet – Auckland International Airport (ASX: AIA) and Worley (ASX: WOR)
• 22:20 – Portfolio construction for the new Eley Griffiths Group mid-cap fund: Audinate (ASX: AD8), Temple and Webster (ASX: TPW), Codan (ASX: CDA)
• 23:06 – A closer look at Boral and the impact of new CEO Vik Bansal
• 26:05 – A closer look at one unloved area of the market: REITs
• 27:52 – Consumer finance stocks have been the subject of investor “angst”: Judo Bank (ASX: JDO), Latitude Financial (ASX: LFS), Pepper Money (ASX: PPM), Liberty Financial (ASX: LFG)
• 29:12 – What would it take for you to turn more positive on these smashed sectors?
• 31:48 – Why Eley Griffiths Group is launching a new mid-cap fund now
• 34:34 – Some of the mid-cap fund’s early core holdings: CAR Group (ASX: CAR), GQG Partners (ASX: GQG), Genesis Minerals, Boral, Auckland International Airport, Worley
• 35:37 – The Rules of Investing’s three regular questions