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Transcription of Finance News Network Interview with Antares Elite Opportunities Fund Portfolio Manager, Nick Pashias



Lelde Smits: Hello and welcome to the Finance News Network and joining me from the Antares Elite Opportunities Fund, is its Portfolio Manager, Nick Pashias. Nick welcome to FNN.



Nick Pashias: Thank you, good to be here.



Lelde Smits: The Antares Elite Opportunities Fund focuses on Australian stocks using high conviction investment ideas. How do you define high conviction and what’s the benefit of this approach?



Nick Pashias: For us high conviction is a portfolio that has less than 30 stocks in it, so we only own a maximum of 30 companies. The benefit of the approach is that we only invest in the stocks that we really like. So we don’t own all the 200 stocks in the index. And it’s really like how you would invest your own money, in buying the stocks that you think are going to perform well.



Lelde Smits: The Fund does have a highly concentrated portfolio. Which stocks do you invest in and how do you identify potential opportunities?



Nick Pashias: Generally our area of expertise is the larger companies, so that’s where you’ll find the portfolios geared towards the larger companies. And the way we choose those stocks is using our selectively contrarian approach. So generally we buy the stocks that are unloved, that are not liked by the market. That’s where we find we make the best returns over the long term.



Lelde Smits: So Nick, how do you determine the mix of the portfolio?



Nick Pashias: The mix of the portfolio can change over time depending on where we think the opportunities are in the marketplace. The market can sometimes be irrational. And it’s our job to try and invest in those companies, that we see longer term value that the market for a short term reason, has discarded.



Lelde Smits: What is the rationale behind this strategy?



Nick Pashias: Within the Elite Opportunities Fund, we’re really trying to get the concentrated approach, which is owning a few stocks and not owning the stocks that are effectively, the fillers in the portfolio. We just want to buy the stocks that we think will perform well on a long term view, in addition to marrying that with our contrarian approach, our selective contrarian approach. So we do a lot of research to uncover these companies and to us, it doesn’t bother us if they’re not liked by the market. Generally that’s where we think the value is - that’s where we make our best returns.



Lelde Smits: Could you give us an example of this contrarian approach?



Nick Pashias: Sometimes it’s very difficult being a contrarian investor, because you have to go against the herd and that’s not a natural tendency for human beings, to stand out on your own. But as I said, that’s where I think you find the best returns and a classic example right now, is Qantas Airways Limited (ASX:QAN). Qantas is a company that nobody likes because of their share price performance, because of what they’ve done in terms of the airline and increasing capacity. People don’t like management, but we see tremendous value in the business on a long term view.



Lelde Smits: Turning to your performance now. How has the Fund performed over the past 12 months and further back?



Nick Pashias: Over the last 12 months, the portfolio has underperformed the benchmark. The market is being driven by momentum stocks, which is not our style. However over the longer term view, the portfolio has beaten the benchmark by 2.5 per cent, over the last five years.



Lelde Smits: What were the drivers behind your March quarter performance?



Nick Pashias: One of the main contributors to performance was investing in AMP Limited (ASX:AMP). So AMP has had issues within their life protection business, which has been across the industry and AMP has been impacted. That caused the shares to fall to what we thought were very attractive levels. So over the last six to nine months, we’ve increased our position in that stock. And pleasingly over the March quarter, the stock performed very well as they made some announcements to the market, that things had improved in that industry.



Lelde Smits: What were the biggest detractors?



Nick Pashias: One of the detractors was Westpac Banking Corporation (ASX:WBC). So Westpac is a company that is well run, well managed, but we think is fully valued as well. So we’re actually underweight that stock, we don’t actually own any Westpac at the moment in the portfolio.



Lelde Smits: What have been the most recent adjustments to your portfolio?



Nick Pashias: Sure. Over the quarter we reduced some of our resource exposure, namely Fortescue Metals Group Limited (ASX:FMG). Fortescue is a company that’s done very well over the last 12 months or so. It got to near $6.00 and we started reducing our position at those levels, and we’ve actually sold out of the company. We feel that what’s going on in China now is that the residential market is slowing. And the residential market consumes a lot of steel, which consumes a lot of iron ore, which is Fortescue’s key product. So we feel that the supply demand dynamics of that market are deteriorating, so we’ve sold out of our position.



Lelde Smits: Finally Nick, could you outline how the Fund identifies opportunities and what opportunities are currently on your horizon?



Nick Pashias: The Fund identifies opportunities through our team of 13 analysts that we have working for us. So it’s our job every day to go through the news flow, to go through company information, to do our own independent research, to get out and see the companies, see their competitors. So that’s how the opportunities arise. And then as a portfolio manager, it’s my job to identify the best ones, the ones we have the most conviction in, the ones we’ve done most work in and put those in the portfolio. So right now we have a large underweight towards the banks, in the financial sector. But on the other side of that, we’ve got a big position in the insurance sector.



So we just think that the banks right now are overearning. Their earnings are very high because of their provisioning charges, which are well below what we think is the long term average, which means their profits are artificially high. So we’ve gone underweight that sector, but overweight the insurance sector, where we think earnings there are depressed. Whether that’s QBE Insurance Group (ASX:QBE) in the US; whether that’s AMP in the domestic market, that’s where we’re finding more value.



Lelde Smits: Nick Pashias, thank you for the introduction to the Antares Elite Opportunities Fund.



Nick Pashias: Thank you, thank you for allowing me the opportunity.





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