MoneyTalks: Where to find potentially handsome benefits in 2024
MoneyTalks is Stockhead’s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now.
Today we hear from Shaw and Partners director of corporate finance and WA state manager Davide Bosio.
Bosio’s main game is small caps and junior resources companies.
Markets have been through a difficult few years with factors such as inflation, recessions and stifled economic growth dominating investment fundamentals, but given the swift and significant increase of interest rates across ’23, he says investors – for the first time in a decade – have been able to take advantage of cash as a genuine investment class.
Investors have been able to lock away capital with no risk into an asset class paying over 5% (in some instances), which represents a genuine return that simply hasn’t existed for many years, he says.
“This has created a scenario whereby investors have reduced risk and broad market exposure to ‘park’ funds into cash for a safe yet modest return,” Bosio says.
“I expect to see this trend changing as the RBA eventually starts lowering rates and the consensus estimate expects this to occur in the second half of 2024.”
As the return from cash investment reduces, Bosio says we may see investors adjust their asset allocation into higher risk/return sectors depending on how the broad market is performing.
“This may benefit some of the real estate investment trust funds (REITs) and listed investment companies (LICs) who may have a funding cost (debt profile) which will improve in an environment where rates reduce.”
Remaining consistent to his long, arduous journey as a gold bull, Bosio says the gold sector looks perfectly positioned for strength, given the underlying gold price and the fact that many of the gold companies are trending below their previous records despite the metal price itself.
Rare earths is another sector of the market Bosio believes will do will this year.
“The sector has suffered as a result of weaker prices and ‘opaque’ markets but demand is driven by battery adoption and renewables – both of which have a significantly strong long term outlook,” he says.
And iron ore – “if we truly do enter a global period of growth, steel demand is likely to continue which will see further strength in the iron ore market.”
But despite that, Bosio says there has been a massive disconnect between the large caps and small caps, which means that small caps now seem highly undervalued compared to their larger peers.
Based on the assumption that there is a strong correlation in performance across these sectors, he says we may see a strong rally in the small cap sector as it plays ‘catch up’ in the first few quarters of 2024.
“Strong balance sheet, new projects being developed to drive production and acquisitive team/management who have executed a consistent strategy to acquire targets whereby they can leverage discovery success and production ounces,” he says.
WAM is a listed investment company with a focus on small-to-medium sized businesses and a large, diversified portfolio.
“Weak performance in the current environment has resulted in a lower share price however the yield has been historically high and a significant attraction to income focussed investors,” Bosio says.
CNI is a real-estate investment trust fund with various listed alternatives including their Office and Industrial companies.
From Bosio’s point of view, CNI is a quality small cap property company with a strong track record of acquiring and managing assets.