Have you heard of this 100-year-old ASX-listed company?

You rarely find a fund that has been running for over a century, but that is the case with Whitefield (ASX:WHF), a listed investment company that has been trading since the 1920s.

Whitefield invests in industrial companies on the ASX and aims to provide investors with a consistent stream of fully-franked dividends and capital growth.

So, how and where will those consistent returns come from in the years ahead?

Angus Gluskie, Whitefield's Managing Director, believes that knowledge of prior cycles and alertness to changes in the current environment is critical. Gluskie says that rapid digital transformation is creating opportunities now and will continue to present opportunities for decades to come.

"You need to be alert in these periods of technological change as to where the economic growth is going to come from and how different businesses are reacting to that. So I think it's important not to rely purely on the past but to have an eye to how those influences are shaping the future of different businesses."

Gluskie says identifying the companies likely to benefit from the process of change and those with resilient business models is essential for consistent returns. Ventia Services (ASX:VNT) is an example of a company he believes will benefit from investing in a wide range of essential infrastructure across Australia and New Zealand.

Brambles (ASX:BXB) is another company Gluskie believes is well-positioned in the current environment, given its dominant market position in the supply of pallets.

In this episode of The Pitch, Gluskie outlines the link between inflation and house prices, three companies he believes are well positioned to benefit from a period of change, and two companies that he believes pose elevated risks for investors.

Watch the video in the player above or read an edited transcript below. 

Edited Transcript

Can you tell us a bit about Whitefield's background?

The company was incepted in 1923, in the heyday of the booming 1920s, and it listed shortly thereafter. So it's been around for a long, long while.

I guess like many Australian share investment strategies, we're looking to generate dividend income and earnings out of the stocks that we hold. We're aiming to hold a diversified portfolio to give people a good level of risk control. And through those two things deliver a good rate of return over a long period of time which we hope we've done.

In terms of the investing market today, how are you reading it?

Well, it's an interesting time at the moment. There certainly are some parallels with some of the things we've seen in history. One of the interesting elements that is there at the moment is that we're in a period of unprecedented technological change. High-speed communications, high-speed data storage is accelerating the pace of learning, development, and change. And traditionally that's meant that economic growth has tended to accelerate when you get those technological changes. That in turn throws up investment opportunities.

It's interesting. At the moment it seems like we have those ingredients of change but economic growth is slowing. Does that mean brighter times ahead?

Well, I think technological change and the opportunities it throws up is something that occurs over a sequence of decades, it won't necessarily occur instantaneously. And certainly looking at the moment we're also facing, I guess, the challenges that inflation brings. And again, that's the thing that's limiting economic growth at the moment. Nominal growth is strong but growth adjusted for inflation is a bit slower.

Is there a prior cycle or time in history that you think is analogous with where we find ourselves today?

Well, the most recent period of inflation that's been there was the 1970s, '80s experience. The inflation at that time was initiated by something different, it was the oil price shock back in those days. However, there are other parallels today. I think anytime that you get a factor driving up the cost of living for consumers, consumers are then forced to seek higher wages to compensate. And as those higher wages go up the employers have to then charge higher prices for goods and services. So there's a very natural spiral, or tendency to spiral that occurs when you get that inflationary impetus. If you think about it today, the impetus wasn't oil prices but it's house prices, it's everyone's biggest expense.

And so if we bring this to the investing context, obviously, each cycle is different. What do you think it's going to take to be successful over the next five, 10 years? What do you think investors need to get right?

Well, look, investing's always about just trying to balance up the price you're paying for an investment with the investment's ability to generate earnings. So you do need to be alert in these periods of technological change as to where the economic growth is going to come from and how different businesses are reacting to that. So I think it's important not to rely purely on the past but to have an eye to how those influences are shaping the future of different businesses. So I think alertness is a really good quality for investors.

You've talked about valuation. It sounds like the price you pay matters a lot at Whitefield. Could I get you to talk specifically to some of the sectors, and a few examples of where you are seeing opportunity?

At the moment I guess we're seeing opportunities come out from areas of technological change. There's a company called Ventia Services (ASX:VNT) which is an interesting stock because it's providing services into developing areas of infrastructure. That's a company that's likely to benefit from the process of change.

At the same time, we're always looking for companies that have got strong positions in the industries in which they operate so we're looking at quality metrics and companies that rank well on those. And in that sense, you can find some companies that have been around for a long time. Brambles (ASX:BXB), for example, continues to retain a good market position both here in Australia and overseas with a product or a service that's essentially very fundamental, pallets.

Anything else that you wanted to call out?

I'm thinking across the financial services space. A stock like Netwealth (ASX:NWL) is well positioned in the financial markets climate that's developing at the moment.

Where are you seeing risks?

Okay, risks. And as investors, it's worth thinking that the risk can come or arise for a number of reasons. Sometimes it's merely because of price. Price and expectations have been driven up too much. Maybe an example there at the moment, Commonwealth Bank (ASX:CBA). It's still a good fundamental business but it's been moved to very expensive levels which makes it hard for an investor to get the return that they're after if they're buying at that level.

Conversely, risk can arise just because the market does not appreciate some of the risks that may lurk inside businesses.

A good example on that front would be NEXTDC (ASX:NXT). It's a business that's building data centres which is quite an exciting growth prospect. But it's meant investors have become very excited about the stock, the stock's been chased up.

It's a business that's spending a lot on CapEx. CapEx is inflating. It'd be easy for the capital expenditure profile to maybe be more than people currently expect. The redundancy in equipment, CapEx, could be faster than people expect requiring the business to have to pay more. And equally, it's a business that would be exposed to potential security issues. If there was a breach of security or hacking into data centres, that could certainly be a problem.

There you go, you've got an expensive stock. It's carrying some risks that maybe aren't priced in. You need to be cautious.

LIC

Whitefield Industrials Ltd (WHF)

Australian Shares

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Whitefield Industrials is the longest operating LIC in Australia

Whitefield Industrials (WHF) is the longest operating listed investment company (LIC) in Australia, established in 1923. It holds a diversified portfolio of Australian industrial shares, including all sectors of the ASX 200 except the mining and resources sector.

Learn more here or please send us an email to hello@whitefield.com.au.