Why this 25-year veteran is dancing close to the exit

Note: This interview was taped on Monday 14 October 2024.

Antares Equities’ Nick Pashias has seen it all in his 25 years in markets. He’s had his moments of doubt and pain. While he believes things are “still moving reasonably well” in equity markets, he’s dancing closer to the exit than he has previously.

This is not to say he is bearish by any means – far from it. He is simply cautious given the unpredictability of geopolitical risks; the US election and the Middle East conflict.

While Pashias doesn’t know how these factors will play out - no one can - “what we can say is that if it did play out negatively, it would be perhaps a small probability, but a very negative outcome", says Pashias. 

“So you want to think about things in your portfolio, things such as gold, which are normally not correlated to the economy or some of the defensives, perhaps, that have been left behind”.

A long-term perspective

Having been in markets for as long as he has, Pashias has a unique perspective.

As mentioned, he endured the hard times, which have arrived in the form of market irrationality (remembering that markets can remain irrational longer than you can remain solvent—or so the saying goes).

“There's been a few [tough periods], and generally it's when the market has gone in one direction but then has this explosive movement in the same direction before it rolls over.

"And it's that last part of it where you think you've there or thereabouts, but it just gets you that one last time and it's quite painful. You are invested in it turning around the other way, but it just hasn't kept going and yeah, they're the difficult times”.

Could we be on the cusp of one such moment, with interest rate cuts likely to extend the current rally? Time will tell.

Overcoming adversity

Fund managers often discuss people, performance, and processes, but Pashias has another ‘P’ that has helped him through difficult moments—“passion.”

“If you've been doing this for a length of time, and certainly for as long as I have, you're going to end up in a dark place at some point in time, something's going to go wrong.

“It's a nature of markets and it's only your passion that gets you through that love, that curiosity, that wanting to find out to get up to keep going”, says Pashias.

Current strategy

Before becoming a fund manager, Pashias completed a PhD in Chemical Engineering and worked for mining companies. He’s carried that interest in and knowledge of miners with him throughout his journey.

As for where we are in the current commodity cycle, Pashias highlights the importance of distinguishing between the short and long term.

In the longer term, he’s mindful of China's structural issues, particularly around its demographics and consumer behaviour.

China's population is peaking and will soon decline, even though the one-child policy was relaxed in 2016. Additionally, China remains a high-savings, low-consumption economy, which poses challenges for sustainable economic growth. These factors make China’s long-term outlook somewhat concerning for investors.

However, in the short term, Pashias sees brighter prospects. He notes that positing towards China is quite averse and there have been a lot of capital outflows in recent years.

“That, from my perspective, is positive that capital can flow back if the market gets a bit more confidence in China and the Chinese economy,” says Pashias.

Furthermore, China’s seasonal growth typically picks up during the latter half of the year, and there is a coordinated effort from the government to stimulate the economy, making the short-term outlook more optimistic despite the long-term challenges.

Outside of metals and mining, Pashias suggests considering assets like gold, which are typically uncorrelated with the broader economy, as a way to hedge against the aforementioned geopolitical uncertainty. 

Additionally, he points out that defensive stocks that have been left behind during the recent rally may present attractive opportunities for investors seeking to mitigate risk.

A matter of risk and reward

Pashias explains that Antares is style agnostic. They are not “value” or “growth” managers, with the ultimate decider of the risk-return profile of any given company.

“What we're looking for is the return profile to match the risk profile.

“We can have a low-return company, but it needs to have low risk. Similarly, the riskier companies need to have a lot of potential in terms of return, and then it's up to portfolio managers to put those into their portfolio as they see fit to match the risk profile of the product”, says Pashias.

High conviction picks

One of Antares’ recent investments is in HMC Capital (ASX: HMC), a smaller company led by a strong management team with aggressive growth plans. Pashias emphasises that Antares’ investment is driven by the quality and alignment of the team, which they believe can capitalise on the large opportunities in the alternative asset management space.

Mineral Resources (ASX: MIN) is another high-conviction pick, and Pashias highlights it as a great example of a company with a significant amount of risk but equal, if not more, potential upside.

“They [MIN] have a lot of debt, but we also think they have a lot of optionality to deal with that debt, whether it's through the cash flows of the business, whether it's the sale of assets.

“We think that there's more of those opportunities available should they choose to exercise them. It’s not without risk, but we think that the return is also there… and some of that has played out in the last couple of weeks where you've seen the return of [MIN] go vertical”, says Pashias.

Watch the video

Make sure to watch the video above for more insights into what it takes to achieve longevity in the stock market, current market risks and opportunities, and Pashias’ View From the Top.

Time Codes

0:00 - Intro
0:26 - Key investment lessons from 25 years in markets
2:10 - The key to longevity
3:10 - The challenging moments
4:04 - A non-traditional background
6:10 - Where are we in the commodities cycle?
8:33 - The Australian corporate landscape 
10:14 - What are the non-negotiables?
11:21 - What's the first step when hunting for opportunities?
12:14 - Companies that Pashias likes right now
13:52 - Deeper dive on HMC
14:34 - Advice for investors right now
15:46 - Nick's View from the Top

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