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2023: A year of opportunity amidst volatility

2023: A year of opportunity amidst volatility

2023: A year of opportunity amidst volatility

Portfolio Manager Mark Freeman provides insights into how AMCIL navigated the volatility of the 2023 calendar year and shares the outlook for 2024.

The past 12 months have seen significant market fluctuations month-to-month due to macro-economic factors influencing investor sentiment. This market volatility, however, presented opportunities for AMCIL to strategically enhance its portfolio by capitalising on undervalued companies.

Despite this volatility, the ASX 200 benchmark remained relatively flat over the year to the end of November, recording a 2.9% rise when franking is included. AMCIL outperformed the benchmark over this period.

Adhering to our long-term investment philosophy, portfolio turnover remained relatively low. While utilising market volatility to seize opportunities we maintained a patient and strategic approach.

Patient strategies yielding results

The resources sector has been a major driver for the market in recent years and, while AMCIL has a meaningful holding in BHP, we aren't overweight in the sector, particularly with smaller resources stocks that have outperformed in the short term. However, we did add lithium producer Mineral Resources to the portfolio more recently as the share price retreated from its significant highs.

In contrast to recent years however, the resources sector underperformed the market in 2023, while industrials rose which helped the portfolio outperform.

We have seen improvements from companies like CSL which we have been patient on and are starting to reap the benefits. Following a drop due to concerns around the potential impact of weight-loss drugs, CSL has since recovered well.

More recently we added to our holdings in quality companies like ResMed, Altium, National Australia Bank and IDP Education at attractive prices. These companies, possessing strategic assets, have begun delivering earnings growth despite the challenging macro-economic environment.

Healthcare rebound

In 2023, the healthcare sector faced challenges, primarily inflated costs impacting margins. However, we're seeing a positive shift as revenue growth improves and cost inflation, though high, is not escalating, leading to margin expansion.

AMCIL holds substantial positions in healthcare giants CSL and ResMed, both affected by concerns related to the wave of weight-loss drugs and their impact on the companies' bottom lines.

For CSL, the impact is minimal, and the company continues to deliver robust earnings growth, with a forecasted mid-teens growth in FY24. ResMed, despite potential threats from weight-loss drugs, remains in our portfolio due to its market leadership, solid management, strong balance sheet, and ongoing initiatives to capture a larger market share.

Quality is key in 2024

We are anticipating a period of earnings growth stabilisation, with economic indicators suggesting the economy is slowing and consumer and household savings rates are declining. Companies must navigate challenges related to elevated costs and inflation to deliver earnings growth.

AMCIL remains committed to quality companies that can exhibit earnings growth independent of the macro-economic environment. Companies like CSL, Transurban Group, Macquarie Technology Group and Goodman Group exemplify this resilience.

In 2024, as economic conditions evolve, we continue to aim to invest in quality companies at attractive prices. Our long-term, low-turnover investment approach ensures sustained value creation for AMCIL shareholders by seizing opportunities in sound companies, both large and small, when market conditions offer favourable valuations.

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