How is a 20-year plus share fund invested now?

IML Investment director Anton Tagliaferro and long-time portfolio manager of the IML Australian Share Fund,  has lifted the lid on the portfolio revealing what he and co-managers Hugh Giddy and Daniel Moore are buying and selling.

Launched in 1998 by Tagliaferro, the fund remains a bastion of the Australian funds management industry and a testament of the cyclical nature of markets.

Commenting on the current health and economic crisis, Tagliaferro said the portfolio was well-positioned for conditions, choosing to “stay away from REITs and hot sectors like technology” preferring more resilient sectors such as healthcare and utilities.

The portfolio continues to favour assets with long durations and companies with strong balance sheets, in line with the investment philosophy of the fund which is to maintain a long term focus and to deliver consistent returns to clients.

Further, it tries to “look beyond daily headlines and share price movements” to focus on the underlying value of a company.

As a result, the portfolio is overweight in healthcare stocks and communication services such as Telstra, and underweight in financials, REITS and resources.

It is buying stocks such as AusNet Services (an Australian energy company), Aurizon (Australia’s largest rail freight operator) and Orora (packaging company) which has been added to the portfolio more recently. Bunnings has also been recently included.

Meanwhile the stocks being sold include banks which Tagliaferro described as “being at the epicentre of the action”, Transurban due to its high gearing levels and Sydney airport because “the balance sheet is quite stretched and no one knows the length of the travel bans”.

Its position to be heavy in cash has also prepared it well to act when companies start to look attractive. “In 3-5 months, health will probably be back to normal but what will the economy look like? We are keeping our cash relatively high so we can act when Bunnings dipped below $3 and those sorts of things.”

Based on the travel bans, lockdowns and interruptions to supply chains, Tagliaferro said the March and June quarter should be in recession, which will have varying degrees on corporate profits.

But IML’s mantra to buy companies with competitive advantages, strong balance sheets and recurring earnings is being tested as the impact of these changes differ from company to company, so while Flight Centre and Qantas have been affected, utilities are relatively unaffected.

“We are staying disciplined,” he said. “The market does change its direction fairly rapidly but our portfolios are underpinned by well established companies.”

And some words of wisdom from the master – is it time to panic and indeed to even own shares? “It’s not easy to stay calm. The value of companies – the profiles of companies go up and down and share prices exacerbates those movements. The world will keep turning.”