Why you shouldn't sit still in this market (and an ASX buy and sell from Martin Currie)

Another day, another headline, and more volatility. And yet, we should have seen this coming. President Trump was clear on his desire to enact tariffs as soon as he won the election, even if the market didn't believe he would go as far as he has in following through. 

As a result, many investors are now grappling with how to position. Some are sticking with buy-the-dip (hey, it's worked every other time), some are rotating to quality, and others sitting tight - either petrified of making things worse, or not willing to play the game of Trump policy whack-a-mole (she'll be right in the end). 

Reece Birtles, Martin Currie's Chief Investment Officer, certainly could not be accused of the latter. He notes that tariffs are stagflationary, and investors should consider their positioning based on that. He advocates a ‘defensive value’ approach to markets, adding that the current uncertainty has been an excellent time to bolster positions.

“We have been far more active than usual, given the wide valuation spread environment and the impact that passive/index flows has had on distorting prices,” he says.

It’s been both a buying and selling opportunity, with Birtles recently taking the chance to sell into share price strength with BlueScope Steel (ASX: BSL) and, in turn, honing in on defensive-quality names.

In the following Q&A, Birtles discusses the current market conditions and why a ‘defensive value’ approach is ideal. He also shares a surprise recent addition to the portfolio and details why Martin Currie sold its position in BlueScope.

1. How are you navigating the current trends and volatility in markets?

We are seeing the Australian market as very distorted coming into this period, with high index concentration, trend following, risk taking and valuation dispersion measures at extremes.

Through this volatility, the defensive, valuation-focused positioning in our Australian Value Equity portfolios (such as the Martin Currie Select Opportunities Fund) has produced significant alpha relative to the S&P/ASX 200 Accumulation Index.

2. Have policy changes affected where you’re looking for opportunity and have you changed risk levels in your portfolio?

The US is following the announced playbook, which always looked stagflationary. We see ‘Defensive Value’ as ideal for that. 

Our most dialled-up risk has been betting against the trend, i.e., becoming more defensive with names like Amcor and Woolworths. 

We also see more opportunities in resources, as risk sentiment moves from US exceptionalism. We are also watching the impact of China stimulus on Australian stocks and playing that in our portfolio.

3. Equally, what do you think the market is overestimating, that you don’t think will have a significant impact?

Something in this bucket would be US bond yields not falling as much as the market expects for the economic slowing. 

Tariffs are stagflationary, so continuing high bond yields and difficult growth make for very different portfolio responses.

4. What was the most recent addition to the portfolio you have made and can you give us the thesis?

Woolworths (ASX: WOW) 

We see it as a great company with a strong market position in a stable industry. 

It had lost ground to Coles in recent periods as it got too complex and further away from its core business objectives of consumer and prices. New management is looking to refocus on the core which should see it regain its old lustre.

5. What was the most recent exit from the portfolio and why?

BlueScope Steel (ASX: BSL) 

We had purchased the stock at a good discount due to weak sentiment conditions at the time. It has now had a rapid re-rate on the US tariffs. With US steel prices already reflecting the tariff, we see that growth will now get harder from here. 

We have sold into the share price strength as we see better growth opportunities elsewhere.

6. With volatility comes opportunity – if your view of the world plays out, where are you likely to be placing outsized bets to take advantage?

We have been far more active than usual given the wide valuation spread environment and impact of that passive/index flows has had on distorting pricing. 

High activity is likely to continue as the higher valued and risky names come back to earth.

For more information on the portfolio, please visit the fund profile:

Managed Fund

Martin Currie Select Opportunities Fund

Australian Shares

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