8 stocks these fund managers would buy (and hold) for 5 years

Livewire’s Rules of Investing podcast first hit the Internet over seven years ago, interviewing many of the most successful professional investors in Australia. 

In the candid, long-form interviews, they share a raft of thought-provoking, insightful information about their investing process, what's happening in markets, and the companies they love (and sometimes hate).

While the financial world changes rapidly, Rules of Investing’s final question for interviewees has almost always been this: 

What stock would you buy and hold if markets closed for five years? 

Share portfolios would probably be the least of our concerns if that happened but, as a thought experiment, it inspires some interesting responses.

In the last 18 months since we last brought you a wrap-up of their five-year stock picks, more than 37 fund managers have been interviewed. We've trawled this back catalogue of podcast recordings to highlight some of the companies their “bottom-drawer” stock selections. We hope to bring you more updates like this in the not too distant future.

Note: The following should be considered general information only. Speak with your own adviser before making any portfolio changes

Mark Landau, L1 Capital

Five-year stock pick: Flutter Entertainment (LSE: FLTR)

Almost exactly a year ago, L1 Capital’s Mark Landau sat in the Livewire Rules of Investing hot seat and discussed a broad range of investing topics. These included his views on the “uniqueness” of contemporary financial markets, where his team is deploying capital, what makes earnings sustainable, and the importance of balance sheets. Landau also shared why the investing playbook of the last decade should be put back on the shelf.

When asked for a bottom-drawer stock pick, he named gaming company Flutter Entertainment, an Ireland-based firm listed on the London Stock Exchange. It operates in the UK, Ireland, Australia, and the US – its most important market, where it holds around 51% market share. Partly because of its dominance in the US, Landau believed the firm was ideally positioned in an industry that is set to grow more than 300% in the next five years.

“You’ve got an incredible management team, the best in the industry, and the shares have pulled back from 160 pounds to roughly 100 pounds so you’re paying the same multiple for that company as for an Industrial in Australia.”

“It’s not a business that requires a lot of capital to grow, being a purely digital business...and the leverage you get as these companies grow, and the amount of capital they require is also zero – that’s a great risk-reward.”

Since last October, Flutter shares are up more than 36%.

Flutter 1-year performance

Luke Smith, Ausbil Investment Management

Five-year stock pick: Allkem (ASX: AKE)

The head of Ausbil’s Global Resources Fund, Luke Smith delved into the commodities sector during his interview last November.

His views resonate strongly now, given his key message around the long-term demand for battery metals despite short-term volatility in the prices of underlying commodities – which is exactly what we've seen in recent times. The sharp pullback in lithium prices is attributed mainly to weaker demand from the biggest consumer of battery metals, China, where lithium carbonate futures were down about 37% since July.

Highlights of the chat with Smith included his explanation of the fund’s bullish stance on battery metals, his belief that the “decarbonisation supercycle” will pull commodities along for the ride, and the complexities of China. When it came to the crucial last question of the interview, Smith named ASX-listed lithium producer Allkem.

“You come back in five years and it will be a completely different business, with an exceptional amount of growth, in a commodity that will go through a number of cycles in this time,” Smith said.

“It’s going to be an extreme around short cycles but we’re very positive around decarbonisation, the demand backdrop will only accelerate exponentially from here.”

In the almost 12 months since Smith’s interview, AKE’s share price is down a little under 20%. But it’s overwhelmingly regarded as a “Buy” among brokers. The recent price weakness is attributed to a combination of lithium supply that has come online faster than expected and weaker demand from the largest consumer, China.

Mary Manning, Alphinity Investment Management

Five-year stock pick: Apple (NASDAQ: AAPL)

In her Rules of Investing interview last August, Manning reflected on the trail of destruction of COVID – not least of which the health implications – including supply chain problems, inflation, and rate hikes.

This had left tech stocks split between those awash with cash trading at attractive prices, and others whose valuations were crumbling. Manning expressed her confidence in those at the extreme Quality end of the spectrum, her five-year stock pick is the near-US$3 trillion consumer tech giant, Apple.

“It’s outperformed the benchmark in 18 of the last 20 years,” Manning said. “If you’ve got five years when you can’t do anything, if you tell me about a company that outperforms in both up and down markets that sounds like a pretty good bet.”

“There’s a whole theory out there that the world’s become…a winner take almost all environment. And among the biggest companies in the world, when the going gets tough, they tend to take market share.”

“I don’t know what’s going to happen in the next five years but I’m very comfortable being in these very high-quality stocks…whatever happens, they can continue to show leadership and continue to deliver on earnings.”

Since Manning’s interview, Apple’s share price has seen some sharp volatility, falling 24% by the start of January and then closing those losses to trade roughly in line at US$180 on Thursday.

Apple 1-year performance

Bob Desmond, Claremont Global

5-year stock pick: Microsoft (NASDAQ: MSFT)

Just last month, Bob Desmond, co-founder of high-conviction fund manager Claremont Global, discussed why he holds such strong belief in his team’s focus on “quality growth”.

Desmond’s view on banks remain as firm as ever. That is, he doesn’t own them and maintains the fund never will. Other areas he actively avoids are the resources sector and others that are commoditised and subject to complex regulation.

“We expect our businesses to focus capital on their most profitable businesses, and we do the same [with our portfolio],” Desmond says.

And his five-year stock pick? Microsoft. While conceding “It’s boring, everyone knows it” he emphasised his belief that firms will continue to keep buying software behemoth’s products.

“The network effect is so strong [and] they’re completely plugged into every business, so taking that out and replacing it with something else seems hard to imagine,” Desmond says.

In the last 12 months, Microsoft shares are up 40%, many expecting the firm is poised to win significant revenue from the rollout of its AI software offering Copilot.

Microsoft 1-year performance

Warryn Robertson, Lazard Asset Management

Five-year stock pick: Ferrovial (BME) and International Game Technology (NYSE: IGT)

In June last year, the head of Lazard Asset Management’s infrastructure team was asked whether he believes investment opportunity still exists in the sector for Australian investors.

Robertson noted that the risk-return trade-off was more complicated to navigate in the post-COVID economic environment, which had seen his team simplify the portfolio to focus on companies providing “decent upside” relative to their intrinsic valuation.

His reaction to the five-year stock question was: “That’s a simple question…that’s the way we think about it in selecting stocks. It’s just the two top stocks in our investable universe.”

One of the companies was Spanish global tollroads company Ferrovial, a diversified infrastructure company.

“When you look at the world through the lens that I use, it holds assets that are fairly close to unique assets and in our view, on conservative assumptions, it’s inexpensively priced,” Robertson said.

Ferrovial 1-year performance

The other is a company, held in Lazard’s Global Equity Franchise portfolio, International Game Technology (IGT).

The world’s biggest lottery operator, IGT is a Spanish company that is four times larger than those previously operated by Tatts Group in Australia (which merged with Tabcorp Holdings (ASX: TAH) in December 2017), Robertson explained. "But it's trading on a valuation multiple that is less than a third of Tattersalls', he said.

IGT shares are up almost 80% since October last year, trading at $30.80 at the latest market close.

IGT 1-year performance

Dr Philipp Hofflin, Lazard Asset Management

Five-year stock pick: Woodside Energy (ASX: WDS)

Talking about financial markets in absolutes – such as whether they’re expensive or cheap at any given time – is a largely pointless exercise for long-term equity investors. This was a point emphasised by Lazard Asset Management’s Dr Philipp Hofflin when he was in the Rules of Investing chair last September.

But one of the sectors he highlighted as most attractively priced, in his eyes, was energy. Large-cap ASX energy producers Woodside, Santos (ASX: STO) and Whitehaven Coal (ASX: WHC) were some producers he owned outright at the time.

Woodside was the company he named when pressed to nominate his five-year stock pick.

“It’s not the cheapest stock by our ranking, but it’s very safe, with a fortress-like balance sheet,” he said.

“They bought BHP Petroleum assets almost entirely with equity…and their breakeven cost [for oil] is something like US$12 a barrel.”

Brent crude prices topped US$90 a barrel at the end of September, with further upward pressure from renewed conflict in the Middle East.

Woodside shares closed at $35.91 on Wednesday, up more than 13% since the end of September last year.

Sam Ruiz, T. Rowe Price

Five-year stock pick: Nubank

Ruiz sat down with the podcast host in December, soon after the NASDAQ had lost almost a third of its value thanks to inflation, rate hikes and slowing business productivity.

At the time, Ruiz had lost none of his enthusiasm for growth investing and some of the more “exceptional” technology firms, with Amazon one of the companies he named as one of the few firms he has owned consistently since 2008.

He also called out the extreme caution many investors maintain about not owning profitless companies, particularly technology names. “Very smart management has an incredible ability to pivot and identify new areas of growth."

A key lesson he learned from one such company, Amazon (NYSE: AMZN), was the importance of “letting your winners run” but also of backing good management.

But Ruiz highlighted a different part of the market entirely when asked for his five-year stock pick.

His five-year stock was Nubank, a South American bank owned by Brazilian-listed company Nu Holdings, which IPO'd in 2021, bringing a social network approach to engage new users in the traditionally under-penetrated “lazy” part of the market in Latin America.

“It’s a business we think can grow 60-70% a year, with a very successful credit card business,” said Ruiz.

Nubank holds a large market share in the region, with a customer base of 70 million that has since risen to 80 million. Ruiz expected this to continue.

“A new company with a very long pathway, it can release a lot of operational leverage from within the business,” Ruiz said.

Late last year, Nubank had only recently reported its first profit, and Ruiz was confident this growth trajectory would continue.

Despite struggling during 2022 when Brazil’s interest rate spikes knocked earnings, the company’s shares climbed 88% in the first half of calendar 2023.

Nu Holdings 1-year performance