Who’s afraid of a little volatility? The ASX and global stocks the WAM team are buying and the risks to watch

Veteran investor Geoff Wilson AO has invested through enough cycles to know that nothing in markets is permanent, but even he admitted to a crowded room of shareholders in Sydney that he had his concerns about the current uncertainty.

That said, it's not holding Wilson or his team back. He reminded shareholders that investing is about time in the market rather than timing the market – and you can’t benefit from the peaks if you weren’t investing through the troughs. He leans on his experiences of the past to push through.

“Our view is this volatility will continue for the next couple of months,” Wilson says.

“In the medium term, we don’t think there are any signs that say we should be significantly worried.”

It was a reassuring start to a detailed session with Wilson Asset Management’s lead portfolio managers, particularly ahead of “Liberation Day”. The team shared their take on the market, how they are positioned, and named 17 stocks they like.

Investing through the noise

Catriona Burns, lead portfolio manager for WAM Global (ASX: WGB), noted that “we’ve been here before,” when it comes to the noise, particularly around US President Trump, and explains she thinks about the markets from two perspectives.

“Firstly, the portfolio is exposed to a number of multi-year thematic tailwinds, which will continue long beyond any Trump administration. And secondly, how do we capitalise on the short-term volatility and find opportunities?” she asks.

Burns had moved defensively months before the US election with the team anticipating Trump’s win, moving out of stocks they expected to struggle with tariffs. Some of the multi-year tailwinds she invests in actually benefit from the market uncertainty. These tailwinds include electronic marketplace, digital enterprise, innovative health, and critical assets.

An example has been the investment in CME (NYSE: CME), which accesses the electronic marketplace theme. She notes that exchanges like CME “don’t care what the direction of prices is, more that they are clipping the ticket every time someone trades.” CME had its best trading date ever in February amid tariff announcements, trading over US$1 trillion in notional value.

WAM expect tariffs to be inflationary in the short-term, but deflationary over the medium to longer-term term.

For those watching for Liberation Day, Matthew Haupt, lead portfolio manager for WAM Leaders (ASX: WLE), suggested we may see a short-lived rally from the Liberation Day announcements.

"Everyone hedges leading into it, and when the actual news drops, that hedging unwinds, volatility drops, and you get leveraged buying. So, you often get a one-day bounce from the resolution, even if it's just temporary. But let’s be clear, it is usually short-lived," he says.

The Australian investments that win in uncertain markets

Broadly speaking, Haupt noted we are seeing an unwinding of the momentum trade that dominated markets in recent years. He’s actually excited about the shift in the market.

“We are in a regime shift. A regime shift can be painful, but it is presenting great opportunities for us,” Haupt says.

“What is working in this environment is high dividend yield and quality. The market is pivoting back to these two factors.”

Like his colleague Burns, he has moved defensively in his portfolio and suggests investors look towards ‘bond proxy type companies’.

He lists options like APA Group (ASX: APA), Transurban (ASX: TCL), The Lottery Corporation (ASX: TLC) and Telstra (ASX: TLS) as stocks that can do well in different environments. He also likes insurers.

“Insurance Australia Group (ASX: IAG) in particular as it has gone very conservative on its reinsurance program", notes Haupt.

He’s watching the REITs space, highlighting that it hasn’t rallied yet despite softening interest rates.

A key opportunity he is watching is China, where he sees green shoots of growth and signs that the Chinese property market is looking attractive again.

“The way to take advantage of this through the ASX is around commodities. For us, commodities like Rio Tinto (ASX: RIO) look really good, cognisant of a slowing environment, but companies like that over the next three to five years will be really positively disposed,” Haupt says.

A challenging environment for small caps

Turning to the smaller end of the market, Oscar Oberg, lead portfolio manager for WAM Capital (ASX: WAM), WAM Microcap (ASX: WMI), WAM Research (ASX: WAX), WAM Active (ASX: WAA) and Wilson Asset Management Founders Fund, notes that small and microcaps are likely to be hard-hit from the market uncertainty. That said, Oberg believes investors should ride it out by focusing on founder-led businesses with strong fundamentals.

He advocates looking for three components to a quality founder-led business.

1. A founder obsessed with their business
2. Easy to understand businesses
3. High-quality management team below the founder

“Experience tells us that when we invest in founder-led companies, they have the tendency to materially outperform the market if they are done well. Some great examples for us over the years include Generation Development Group (ASX: GDG), Regis Healthcare (ASX: REG), Pro Medicus (ASX: PME), Technology One (ASX: TNE), Seven Group (ASX: SVW),” he says.

In keeping with this approach, telecommunications business Tuas (ASX: TUA) has been one of the best performing investments in the portfolio.

While Oberg doesn’t expect outperformance in the next few months, he’s not worried. He comments that some of the best decisions he’s made in the past for the small cap portfolios have been in periods of uncertainty, such as the sell-off in April-June 2022.

Oberg particularly likes Eagers Automotive (ASX: APE) and Beacon Lighting (ASX: BLX) in the current market.

Eagers Automotive is the largest car dealer in Australia with 12% market share. Oberg notes it has struggled in the past few years but has increased its margins and has a great management team.

“We think the business is primed to make an acquisition in an offshore market like Canada,” he says.

Beacon Lighting is a large lighting equipment and fan retailer. Oberg believes the business decision to go into the trade sector a few years ago has been a significant catalyst.

“This has been a roaring success for the business. They have around a third of their revenues at the moment exposed here and about 5% market share. In time, we think they can get to 10% market share,” Oberg says.

Oberg is expecting the small and micro-cap market to look promising in the later parts of the year as the IPO pipeline and takeovers start to build and should continue into 2026 – a positive for small cap funds.

He suggests two takeover options Autosports (ASX: ASG) and EML Payments (ASX: EML), where you are effectively just paying for the value of the assets and getting the operating system as a bonus. He anticipates both will generate substantial interest in the latter parts of the year.

Global opportunities from volatility

While many investors have been unnerved by recent market uncertainty, Burns has taken a leaf out of the Buffett school of investing and is looking for the opportunity to buy companies she likes at a discount.

An example is IDEXX (NYSE: IDXX), a global leader in pet healthcare innovation offering diagnostic tests and equipment. Burns highlights that it is benefiting from the humanification of pets.

“This is a business we’ve admired for many years, hadn’t bought on valuation grounds, but a great example of a business where we’ve been given the opportunity to buy because of short-term volatility,” she says, pointing to strong fundamentals and a high-quality management team.

Further to buying into uncertainty, Burns looks for companies that can specifically benefit from volatile periods.

One example is RBGlobal (TSE: RBA), which Burns bought in early 2024, seeing a catalyst in the form of a change in management – a new CEO, Jim Kessler. Burns is happy with the fundamentals and feels that the operational execution has been “exceptional”, but what is also pleasing is that the business is specifically benefiting from this environment.

RBGlobal operates auctions for used equipment in the construction and agriculture sectors, as well as salvaged vehicles.

“Where the economic outlook is unclear, you see more buyers and seller of equipment,” she says.

Lessons for investors in the coming months

If there’s a key takeout for investors (outside of all the fantastic stock references the team shared), it’s that uncertainty is not to be feared; it’s an opportunity where you can look for great stocks to buy for the longer term.

As Haupt pointed out, now is the market for active management, a return to a focus on quality, strong fundamentals and dividend yield, and a movement away from momentum trades.

Finally, to return to Wilson’s point of the start – it’s time in the market, not timing the market, so hold course with quality defensive businesses throughout this part of the cycle.