15 February 2008
With equity markets free-falling in the biggest drop in two decades BlackRock's Robin Young, an industry veteran at 33 years of age says you have to keep the courage of your convictions.
Robin is investment manager at BlackRock's (Merrill Lynch) Australian Growth Share Fund, which boasts an impressive track record over the last three years outperforming the ASX Benchmark each year.
Blackrock's Australian Growth Share Fund has shown healthy returns, reaping 12 per cent value above the ASX benchmark in 2007 with around 80 large, mid and small cap companies.
The majority of the fund is invested in the ASX 100 and the rest with mid and small-cap companies, with the top ten positions made up of BHP Billiton, Rio Tinto, Westpac, Woolworths, CBA, CSL, QBE, Newcrest Mining, Wesfarmers and Brambles.
Young is part of a team of seven investment professionals who analyse company financial statements, management teams and industries to determine attractive investment opportunities that can be added to the portfolio.
Turbulent times ahead
But Young is not thinking about the past but the turbulent times ahead.
He has been through a number of major downturns and says the prospects of a US recession will mean a tougher first quarter.
"This is an environment with a huge degree of uncertainty but what to look for is the earnings reports late January and in early February and what the US consumer is doing".
He says a lot can be learnt by going behind the share price and understanding the business environment.
"We need to look at the balance sheets, profit statements, what the management of companies are saying about the current environment, and whether factors, such as oil and labour costs, are priced into earnings".
He has added a number of key resource stocks to the portfolio, such as BHP and Rio Tinto, and held a positive view on that sector since 2003, until a major correction in 2004 tested the courage of his convictions.
"We held the view that domestic drivers within China would support our position that resource stocks are a good long-term proposition and we were proven right".
However, it's not all been plain sailing, and since Young came into the industry he's battled through stormy waters on a number of occasions.
Surviving the troughs
Young at 23 years of age accepted a secondment with Merrill Lynch Investment Managers Australia in 1998, an arrival that coincided with the Asia crisis, and so brought on his baptism of fire.
An experience that he believes strengthened his resolve.
"I was always attracted to Australia and within three hours of arriving I knew I would never leave. Now 10 years later, I have a wife, two kids, a house with a mortgage and renovations", he says.
He adds that one of the constant challenges facing an investment manager is to ensure your ideas remain fresh and when your views are not consistent with the market, be able to maintain your position if you believe your analysis is correct, even if it's unpopular.
One example, he says is the dotcom era, where Merrill Lynch Investment Managers Australia did not hold market-favoured stocks, such as Solution 6.
In this context, the fund under-performed heavily and did not make the monthly numbers.
"Having the courage of your convictions can make for a very unpleasant time. Underperformance is not a fun place to be. I don't like it and clients don't like it," he says.
He spent long hours working and then studying at night for a Chartered Financial Analyst (CFA) qualification - the highest of global financial credentials for investment managers.
He says that the post-September 11 period, when the US went into recession has "some similarity to the crisis now and it is difficult to know how long this will last."
"At that stage, we weren't into Listed Property Trusts (LPTs) although they were doing well. We didn't own them. In the short-term we weren't getting rewarded but it did pay off in the long run".
He believes that you learn through your mistakes and experience has taught him to balance his beliefs about a company's medium and long-term potential with short-term market realities.
And so into the future
As an investment manager who's been through a number of downturns, Young believes the prospects of a US recession will mean a tougher first quarter.
"This is an environment with a huge degree of uncertainty, but what to look for is the earnings reports in late January and in early February, and what the US consumer is doing."
"I have been in China recently and in my opinion, the US housing and credit crises are not a major issue. The domestic drivers remain strong enough to withstand a fall-out from a US recession."
Young says he does not ascribe to the "growth versus value" separation and whilst being perceived as a growth manager, every position taken needs to offer attractive value as well.
"I believe in the value of what I buy. I am looking for a business that has growth options. I can profit from insights into the market and incorrect forecasts," he says.
He says sentiment is driving the market at the moment.
"Investors need to remember markets don't go up in straight lines and there are corrections."
"But you need to retain a cold and hard look at a company's financial statements, and look behind the veneer to get a good picture of what they will achieve in earnings. You still need the courage of your convictions."
