Blog / News

Paradigm Group Investment Views: Paradigm Australian Share Portfolio
March Activity in Response to Market Conditions

It has been a tumultuous month for the world economy and financial markets as a result of the onslaught of the coronavirus.

At the end of February, the global economy was in good shape, as was the Australian economy.   Australian companies post the reporting season, in general, were also well placed.

Within a few weeks, this changed with incredible swiftness and severity.

Managing a portfolio of Australian shares is very challenging in such a fast-moving environment with such uncertainty. At the end of the day, investors who own Australian shares are long term investors and are aware of the volatility that can occur.  However, some companies and sectors can be impacted more severely or for longer when conditions deteriorate. This factor is the reason why portfolio changes are necessary and it is through this activity that value can be added.

The chart below, updated to 26th March, indicates the positive performance of the Australian Share portfolio when compared to its benchmark (the ASX 300 – an index of the largest 300 Australian companies). The portfolio has outperformed the index strongly over the last week, the month of March to date and the calendar year to date.

Over the last several weeks, the Australian Share portfolio has been active in adjusting a number of holdings, to reduce exposure to companies or sectors that are affected more severely in the current conditions, whilst seeking value in other opportunities.

For your interest, we have set out below some of the recent material changes that have been made and the reasons.



Flight Centre (FLT)

Prior to the emergence of the coronavirus, FLT was on track to deliver record 2020 fiscal year (FY20) sales and further monthly records in both January and February. At the beginning of March, FLT had a market capitalisation of $3billion, provided a good dividend yield and had a robust balance sheet. Over the last weeks, the global travel industry has ground to a halt and FLT will suffer significant earnings decline over an unknown time frame. It has cancelled its dividend and moved into survival mode. As the negative impact of the coronavirus accelerated, FLT was sold.

Oilsearch (OSH)

In the midst of the coronavirus, another extraordinary financial event occurred. Russia and OPEC failed to meet agreement on oil supply constraints and Russia effectively launched an oil price war. The oil price collapsed putting extreme pressure on global producers and service providers to the oil sector. After this, and in response to a positive test of coronavirus, Papua New Guinea’s National Executive Council declared a State of Emergency for 14 days and stopped all international and domestic flights. As a result, the full holding in OSH was sold, to rotate funds into other companies within the sector that will be better positioned when the oil price recovers.

Suncorp (SUN)

In response to economic factors, the Reserve Bank of Australia slashed interest rates to a record low. Lower interest rates are set to impact returns in the insurance and banking business, and as a result SUN was sold.

South 32 (S32)

S32 is a diversified mining company operating across a range of commodities and jurisdictions. However, this comes with complexity when countries close their borders and transportation becomes an issue. During the current challenges globally, there is a focus on increasing the exposure to commodities that have performed the strongest over this period and have domestic operations. Hence, we have sold S32 in order to rotate funds to Rio Tinto, a world leading low cost iron ore producer.



APA Group (APA)

APA is the leading gas pipeline owner in Australia, with linked assets between all major gas hubs it holds an unrivalled competitive position. Largely holding a monopoly position, it is exposed to sustained growth in the extraction, storage and shipping of gas. The defensive nature of the cash flows in the business has made it particularly attractive in the current environment, with long term earnings certainty combined with growth and yield. The current market volatility has provided an opportunity to build a position at an attractive valuation increasingly attractive in a decreasing interest rate environment.

Rio Tinto (RIO)

RIO is now trading down more than 30% from its recent high. With the bulk of earnings coming from the Pilbara Iron Ore operations we see low risk of disruption and a robust outlook for demand as China moves to stimulate its economy post the coronavirus slowdown. A lower Australian Dollar provides earnings support as all shipments are based in US Dollars. With a strong balance sheet and now a sustainable yield above 7% we see a strong opportunity to benefit from strong returns going forward.

Beach Petroleum (BPT)

Beach has successfully driven consolidation in the domestic Oil & Gas industry and in doing so has materially strengthened its growth outlook while at the same time driving down its cost to operate through scale and focus. Combined with an industry leading balance sheet we view BPT as a company that will emerge from this oil price driven downturn in a much stronger position than many of its peer group. BPT has an attractive combination of lost cost assets and growing production. The recent share price decline, falling more than half in the last few weeks, has provided a very attractive opportunity to initiate an exposure at a discount to intrinsic value.



Healius (HLS)

Prior to the coronavirus, HLS attracted the attention of global Private Equity firm Partners Group with an indicative takeover proposal at $3.40 per share. HLS rejected this offer believing it undervalued the company, given the quality of the earnings within the strong Pathology and Radiology businesses. With the share price trading now around $1 below the bid price due to market conditions, we used the current weakness to ADD to the existing position.

Amcor (AMC)

Primarily exposed to non-discretionary goods, the company’s revenue line should remain resilient to global turbulence, with margin upside potential from lower input costs.

Management is very capable of maximising the current opportunities and we remain very positive on the outlook for the company. We view the current weakness as a rare opportunity to ADD to the existing holding in a well-managed Australian company with leading positions in global markets.

James Hardie (JHX)

James Hardie (JHX) has performed strongly since its addition. However, we believe long term upside remains as the US housing market continues to show growth supported by lower mortgage rates. Strong management execution is set to deliver market leading growth as well as the potential for further valuation upside in a recovery phase, hence we used the current weakness to ADD to the existing position.

Please feel free to contact your Paradigm Group advisor should you wish to discuss any issues in relation to your specific circumstances.



Mike Hawkins, Paradigm Group – Investment Committee Chair

Paradigm Group Market Commentary: 2023 and expectations for 2024

The year ending 30th June 2023 finished with a strong recovery from...
Read more

Paradigm Group Quarterly Portfolio Update – September 2022

The September 2022 quarter started with a general market rally and some...
Read more

Upcoming Events

No events are currently scheduled

We will update this section when we have events coming up. Stay tuned or register your details below.

Register your interest in our upcoming events.