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CONTRIBUTORS

Reece Birtles

Portfolio Manager and Head of Australian Equities

We sat down with Head of Australian Equities Reece Birtles as he reflects on the drivers of the team’s strong returns for the Australian Select Opportunities and Equity Income strategies, and explains how passive flows, systematic trading and sharper price dislocations are creating opportunities for fundamental investors in the coming year.

Key takeaways

  • Historically wide valuation spreads provided a strong foundation for active returns during the past financial year. When the valuation gap between the team’s portfolios and the broader market has previously exceeded 40%, it has been followed by significant alpha generation as mispricing normalised.
  • Some of the year’s most important opportunities were found among Australia’s largest companies. Active positioning in stocks including BHP, Commonwealth Bank and Woolworths demonstrated that substantial mispricing—and meaningful alpha potential—can still emerge within the market’s top 20.
  • Passive flows and systematic strategies are allowing valuation dislocations to persist for longer, while also contributing to much sharper corrections around results and other major events. Price moves that once unfolded over several years can now occur within days, rewarding investors able to combine patience with active portfolio management.
  • As momentum and passive trading increasingly influence conventional measures such as beta, the team’s research has evolved beyond simplistic definitions of quality and risk. Greater emphasis is being placed on valuation, factor positioning, enduring competitive/economic moat type of analysis and fundamental red flags.
  • Looking ahead, Australian Select Opportunities portfolios remain supported by solid earnings and attractive valuations, with most holdings trading below 15 times earnings. Australian Equity Income portfolios are also benefiting from stronger earnings growth, a franked yield of approximately 6% and an environment that may support further dividend growth.

Read the full paper here

Important Information

Franklin Templeton Australia Limited (ABN 76 004 835 849) is part of Franklin Resources, Inc., and holds an Australian Financial Services Licence (AFSL No. 240827) issued pursuant to the Corporations Act 2001. The ClearBridge Australian Equities Investment Team, a division of Franklin Templeton Australia Limited, is operationally integrated under the “ClearBridge Investments” global brand, alongside ClearBridge Investments, LLC (“CBI”), and other ClearBridge entities indirectly wholly owned by Franklin Resources, Inc. Distribution of this material is issued and approved in Australia by Franklin Templeton Australia Limited.

This publication is issued for information purposes only and does not constitute investment or financial product advice. It expresses no views as to the suitability of the services or other matters described in this document as to the individual circumstances, objectives, financial situation, or needs of any recipient. You should assess whether the information is appropriate for you and consider obtaining independent taxation, legal, financial or other professional advice before making an investment decision.

Neither ClearBridge Investments, Franklin Templeton Australia, nor any other company within the Franklin Templeton group guarantees the performance of any Fund, nor do they provide any guarantee in respect of the repayment of your capital.

The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.

Past performance is not a guide to future returns.

The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information.

The investment vehicles shown may have different risk profiles and a direct comparison may not be appropriate. You should consider a number of factors when considering an investment, including fees, services and benefits provided and performance.

The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.

The information provided should not be considered a recommendation to purchase or sell any particular strategy / fund / security. It should not be assumed that any of the securities discussed here were or will prove to be profitable. It is not known whether the stocks mentioned will feature in any future portfolios managed by the investment team. Any stock examples will represent a small part of a portfolio and are used purely to demonstrate our investment style.

The analysis of Environmental, Social and Governance (ESG) factors forms an important part of the investment process and helps inform investment decisions. The strategy/ies do not necessarily target particular sustainability outcomes.

Risk warnings - Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.

  • Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.

  • This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.

  • Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.

  • The strategy may invest in derivatives (index futures) to obtain, increase or reduce exposure to underlying assets. The use of derivatives may restrict potential gains and may result in greater fluctuations of returns for the portfolio. Certain types of derivatives may become difficult to purchase or sell in such market conditions.

Please read the relevant Product Disclosure Statements (PDSs) and any associated reference documents before making an investment decision. In accordance with the Design and Distribution Obligations and Product Interventions Powers requirements we maintain Target Market Determinations (TMD) for each of our Funds. All documents can be found via www.franklintempleton.com.au or by calling 1800 673 776. 

© Franklin Templeton Australia Limited. You may only reproduce, circulate and use this document (or any part of it) with the consent of Franklin Templeton Australia Limited.

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IMPORTANT LEGAL INFORMATION

Information on this website is intended to be of general information only and does not constitute investment or financial product advice. It expresses no views as to the suitability of the products or services described as to the individual circumstances, objectives, financial situation, or needs of any investor. You should conduct your own investigation or consult a financial adviser before making any decision to invest. Please read the relevant Product Disclosure Statements (PDSs), and any associated reference documents before making an investment decision.

Neither Franklin Templeton Australia, nor any other company within the Franklin Templeton group guarantees the performance of any Fund, nor do they provide any guarantee in respect of the repayment of your capital. In accordance with the Design and Distribution Obligations, we maintain Target Market Determinations (TMD) for each of our Funds. All documents can be found via the Literature Page or by calling 1800 673 776. 

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