How six fund managers would invest $10,000 today

Volatility and anomalies in global equity markets mean long-term investors can pick up undervalued stocks, Martuccio says.

“In particular, the sector I believe is undervalued is global small and mid-caps – the price to earnings ratio of global SMID Caps (currently 15.5x) is an 14 per cent discount to the 10-year average and a 38 per cent discount to the MSCI World Growth Index.”

These companies represent “one of the last areas” in equities in which the balance between fundamentals and valuations is “relatively unscathed”, Martuccio says.

Specifically, he’s looking at Danish ostomy and incontinence company Coloplast and steam oven company Rational.

“Coloplast is the global market leader in ostomy and incontinence, as well as having a very established wound care division. They have recent acquired Kerecis (fish skin for skin grafts or burns patients)… and is taking share from established players.

“Additionally, Coloplast has reiterated their 30 per cent earnings before interest and tax margin target, which should give the stock great upside over the medium term.”

As for Rational, Martuccio notes KFC uses their ovens to cook chickens. He says their automated, sensor-based cooking means installation in hotels, fast food restaurants and conference facilities helps improve food consistency and reduce costs.

“Their clients love the cost savings because the payback is usually under one year.”

There are bargains in high-quality growth companies

Anna Milne, ​senior investment analyst at Wilson Asset Management

Milne says she would always recommend a diversified portfolio, but adds the current market rout has created opportunities to pick up high-quality growth companies at “bargain prices”.

“Goodman Group is a great example of this,” she says.

“It is now trading back at levels similar to before their new data centre strategy was announced in August, which will underwrite their earnings growth over the coming years.

“Another example is Orora, valued at historical lows, despite the recent acquisition of Saverglass, which we believe will deliver synergies and growth opportunities far greater than the market appreciates, as well as the upside from the imminent removal of Chinese tariffs on Australian wine.”

Boring is a-okay, and look at US treasuries

David Tuckwell, senior product and investment strategist, Global X ETFs Australia

“In investing, boring is usually better. Your most powerful and useful ideas – like diversifying, keeping costs low, staying disciplined – are usually your simplest,” says Tuckwell.

One of the better ideas is to buy US treasuries, he says.

“Real yields – which adjust for the effects of inflation – are in their highest 90th percentile over the past 20 years at many points in the curve, while nominal yields are at 5 per cent (there or thereabouts) at most points in the curve too.”

Using Treasuries rather than term deposits or floating rate instruments as income means investors can lock in yields for years to come, should the US Federal Reserve cut rates next year, Tuckwell says.

“Indeed, with the rising debt pile in the US, and inflation trending down, some investors are surely wondering how long yields can stay at these levels for,” he says.

Transurban is looking pretty interesting

Sarah Shaw, chief investment officer, 4D Infrastructure

“The honest answer is, if I had $10,000, I’m putting it into my own fund right now,” says Shaw.

But if she had to pick a particular stock, Shaw leaning towards Transurban.

“I’d never normally say this – just because normally it doesn’t offer this level of value – but Transurban has become a top 10 position for us, and it hasn’t been a top 10 position for us in eight years,” she says.

“I don’t like naming Australian stocks, but the reality is it’s something [Australian investors] will know and understand. I’ve never really been able to push it before, because it just hasn’t offered the value that it is offering today.”

Outside of infrastructure, she says emerging market bonds and uranium are the two other areas she would “dabble in” with a spare $10,000.

Patient investors favoured by compelling valuation opportunities

Damon Callaghan, partner, ECP Asset Management

ECP allocates the most capital towards “compelling valuation opportunities”, Callaghan says.

One of those, according to Callaghan, is investment company GQG Partners, which is at nine times 2023 earnings.

“The GQG franchise continues to execute across portfolio performance and global distribution build out, driving consistent funds under management inflows into what we believe is a large-capacity opportunity,” he says.

“The stock is currently off-the-radar for most institutional managers given its benchmark exclusion (due to low free float), which we believe is contributing to its undervaluation – but patient investors are being ‘paid to wait’ with a 10 per cent dividend yield at the current share price, in a growing business.”

Look to equity options markets for new income

Hugh Selby-Smith, co-chief investment officer, Talaria

We’re likely to be facing a future of meaningful low long-term returns to equities, says Selby-Smith, thanks to a potential economic downturn coupled with a high-valuation environment.

In this climate, he says income will play a more important role than ever when it comes to investor returns.

“Income is always important,” he says. “For example, since 1880, the S&P 500 has had three decades (1910s, 1930s, 2000s) in which income was the entire component of total return.”

But he notes that traditional income sources, such as dividends may not be enough, as companies often reduce shareholder payouts in downturns, and while the cash rate remains relatively high.

“I’d look for alternative sources of income generation such as those available on the equity options markets, creating a consistent and differentiated income source,” he says.