Mirrabooka Investments Limited managing director Ross Barker says mounting investor nerves over what will happen after Donald Trump's inauguration may present buying opportunities for unruffled buyers.
"We believe there will be quite a lot of volatility with the new administration in America and the ongoing geopolitical issues, so we'll look for value out of that volatility," Mr Barker said.
Markets were buoyant after Mr Trump's election – the return on Australian shares was 3 per cent in November and the US grew at its fastest pace in two years in the September quarter, but Mr Barker said investors remain concerned about Mr Trump's approach to global trade agreements and what the fallout may be for China and Australia.
"His views on some geopolitical issues such as the Middle East and China are feeding into some uncertainty … we may see investors get nervous and that will present some opportunities for patient long-term buyers," he said.
Mr Barker said the listed investment company specialising in mid- to small-caps, which favours industrials but is light on resources, is looking at a range of companies to buy, many of which already feature in its portfolio.
"We could be looking at adding to the ones we've got and we've got a few on our radar. We haven't bought them yet, because they are still a bit expensive," he said.
Some of the most significant additions to Mirrabooka's portfolio recently include Isentia Group and Iluka Resources. It has also added a number of new companies including Carsale.com and Computershare.
These comments come as the company announces its results for the half-year ended December 31, 2016, seeing a 20.4 per cent drop in net profit to $3.9 million compared to the previous corresponding period.
'A topsy-turvy half-year'
Mr Barker said the the six-month portfolio return with franking was 6.3 per cent, compared to its benchmark – a combined small- and mid-cap market index – of 7.3 per cent with franking. However, the interim dividend was maintained at 3.5 cents per share fully franked.
Hurting Mirrabooka's performance was the strong uptick in the small- to mid-cap resource sectors, which were up 40.2 per cent and 6.3 per cent respectively over the six-month period.
"It's been a topsy-turvy half-year in the sense that for around four months mid- and small-cap companies were doing very well. Then around the time of the US election people got a bit more positive about the larger companies, which started to recover some of the underperformance they had over the last 18 months to two years," he said.
There was also a rotation by the market out of highly-priced mid and small industrial companies back to larger companies, which until recently had substantially underperformed.
"In this environment, Mirrabooka's short-term portfolio performance was below its mid- and small-cap benchmark, particularly as the company has few investments in the resource sector," it said in its results to the market.
"However the longer-term performance of Mirrabooka was still well ahead of its benchmark. For example, the five year returns including the benefit of franking was 16.5 per cent per annum compared with the benchmark of 10.7 per cent per annum."
Mr Barker said that it does have "a few" resources companies in its portfolio there were no plans to make any strategy changes given these results.
"A lot of the resources companies in the mid to small-cap space are pretty speculative...but were more interested in businesses which produce profits and pay dividends to their shareholders," he said.
"Resources are very dependent on commodity prices. In the last two months we've had a whiff of global growth improving and all of a sudden there is life in the sector again. I think going forward we'd probably think commodity prices are at a reasonable level and unlikely to go higher. In fact, they're more likely to fall."
