(Please find CPD quiz below)

Key Takeaways

[00:00:42] A very volatile quarter for the market and we're continuing to see some markets melting down. How have you and the team been navigating this period?

The market has been experiencing significant declines, with the ASX 200 down nearly 17% and US markets falling over 20% since their peaks in mid-February. Despite a good start to the quarter, March brought increased volatility, particularly affecting US-exposed holdings.

Navigating this volatility, the portfolio has focused on adding to positions in US-exposed businesses with strong balance sheets, such as BlueScope, ResMed, News Corp, and Aristocrat. Conversely, we are not adding to companies with higher levels of debt, like James Hardie. Additionally, we see opportunities in Australian consumer-facing businesses, which are expected to benefit from falling interest rates. For example, we recently added JB Hi-Fi to the portfolio and the other beneficiaries in the portfolio include businesses like Charter Hall, which will gain from lower interest rates. We're increasing our positions in these companies during the sell-off, along with businesses like Nick Scali and Premier Investments.

[00:04:29] Could you explain how the tariffs are affecting BlueScope and why it continues to be one of our top 10 holdings?

BlueScope is a steel and steel building products producer with operations in the US, Asia, Australia, and New Zealand. In the US, they operate the Northstar electric arc furnace and various building products assets. Tariffs have increased steel prices and spreads in the US, benefiting Northstar's earnings in the short term. While there are medium-term concerns about US demand and economic growth, BlueScope's strong balance sheet, competitive position, and significant earnings from outside the US provide comfort. We see long-term structural earnings growth opportunities, making BlueScope a valuable holding despite short-term volatility.

[00:05:54] It's clear the market hasn't reacted positively to James Hardie’s ASEC acquisition. What are your thoughts on this?

We own James Hardie due to its strong long-term growth potential in the US siding market, driven by the shift from vinyl to fibre cement. However, the acquisition of AZEK has significantly altered our investment thesis. We believe James Hardie paid a high price for a lower-quality business, diluting our exposure to the core siding business and changing the company's return on capital profile. While AZEK has growth potential in PVC and composite decking, we're concerned about the acquisition's cost and its impact on leverage and business quality. The share price has dropped 30% since the deal, and we're currently evaluating whether this decline compensates for the changes. We're conducting thorough research to make a well-informed, long-term decision for our investors.

[00:008:07] Vinay Ranjan in the Airlie Investment team recently visited the UK and Ireland, can you give us some insight and key takeaways from this trip?

Vinay Ranjan recently travelled to the UK and he met with the head of Nick Scali's UK expansion, where Nick Scali has been converting Fab Furniture stores into their own branded stores. Vinay observed that Nick Scali's modern products stand out against the outdated offerings of competitors. Encouragingly, the best-selling lounge in the UK is the same as in Australia, suggesting some portability of tastes. The UK market, being three times the size of Australia, offers significant growth potential if the expansion succeeds.

Vinay also visited Ireland to meet with the CEO of Irish Chemist Warehouse, which has been operating there for five years with 12 stores. He found the stores bustling, similar to those in Australia, with customers drawn by low prices. The Chemist Warehouse model, with its large stores and competitive pricing, contrasts with the high-margin, small-store format of traditional pharmacies. Early signs in Ireland are positive, and the market could support at least 50 stores. Success in Ireland against the main competitor, Boots, could pave the way for a similar expansion into the UK.

[00:12:13] Joe, you made a visit to China, can you share insights from your trip?

I spent a week in China to assess whether recent government stimulus has improved the consumer outlook and if it might drive a turning point in commodities demand. While consumers seem better off than a year ago, this hasn't yet translated into increased commodities demand. Steel companies reported flat order books, and although the electric vehicle sector is growing, it hasn't significantly benefited critical minerals or lithium producers due to abundant supply. Instead, vertically integrated downstream players are capturing market share. We remain underweight in resources but continue to monitor the situation for potential opportunities.