AIM Funds chief executive and chief investment officer Charlie Aitken is backing himself against the Sydney housing market. Louie Douvis
As a stockbroker for 20 years, Charlie Aitken was never shy about making the big calls. And now as a fund manager he’s still making them.
This time round he’s backing himself against the booming Sydney property market.
In September, when the Darling Point house he and his wife Ellie sold for about $11 million earlier this year finally settles, part of the proceeds will be put into his $75 million fund, Aitken Investment Management, rather than back into bricks and mortar.
“It’s all about backing myself and having a go. I think there is more money to be made in global stocks than there is in the Sydney property market and I’ll back my fund over Australian residential property,” he says.
It’s been a year since Aitken made the switch from stockbroker to fund manager and to say the clubby world of financial markets is fixated with just how the move will pan out is a bit of an understatement.
There’s probably more to the debate than can a successful stockbroker become a successful fund manager.
In a small market Aitken is high-profile with some very strong views on how to make money.
Whether it’s his calls on the start of the bull market back in 2012, or his connection to billionaires Andrew Forrest or Kerry Stokes, who was expected to tip $150 million into the fund but decided not to, or even his wife Ellie attending a pre-Oscar party with Russell Crowe’s entourage, Aitken is never far from the limelight.
But he’s also upfront. And if is anyone wondering he makes it clear that Ellie remains chairman of AIM, that they are married – have been for 14 years – and with two children, and there’s also nothing untoward about Michael Considine, the former head of trading, leaving the fund a few months ago. Aitken says “he just wanted to go and do his own thing”, and it leaves Les Andrews as his second in charge, “which he always was”.
Sometimes the spotlight even extents to the wider family. Charlie’s brother Angus, the former head of institutional equities at Bell Potter, where they both plied their trade for years, hit the headlines a few months ago when he publicly declared ANZ a sell after it hired a former investment banker as chief financial officer.
And if anyone in the broking world wants to know if Angus is going to end up working at Charlie’s fund, the answer is: No.
“I don’t think Angus wants to work at my fund. He has my absolute support, he is a great stock broker, but you know, the investment management thing is for me and my team,” says Aitken.
He doesn’t want to be drawn into commenting on his brother’s plight, but he does have some reflections on the broking world he’s left behind.
Aitken is quick to say he’s not going to be one of those that criticise brokers, indeed he thinks the good ones don’t charge enough for their service.
But he also thinks the hardest thing to do as a broker was write the “s” word: Sell.
“The ‘s’ word just aggravated everyone. If you write sell it aggravates investor relation departments, it aggravates corporates, it aggravates analysts, it just aggravates people. Now, if we have a negative view as a fund manager, we either don’t own it or we can short it,” he says.
“I think the hardest thing in broking is still having an independent negative view. I don’t think that’s changed, and if I had my time again I probably would have had more negative views, but the hassle and the angst that those negative views caused you personally was almost not worth writing.”
Driven by performance
On this points Aitken also reflects about Angus and his current situation.
“If he concluded that ANZ was a buy, not a sell, would this have ever happened? That’s what I ask myself. The note ended with ‘sell ANZ’. If it ended with ‘buy ANZ’, who knows?”
Still, Aitken understands the interest in his career move and says it drives him to deliver performance, which so far he is.
The fund is up 3.92 per cent over the past 12 months, much better than it’s US dollar MSCI World benchmark index, which is down 2.48 per cent over that time frame.
That’s 6.4 percentage points of outperformance during a wild time for markets and if he measures the fund agains the MSCI World index in Australian dollars he has beaten that index by 11.29 percentage points over the past 12 months.
As the fund enters its second year, Aitken has just signed a deal with the Sequoia Financial Group that allows retail investors and self managed superannuation funds to get exposure to international stocks through his high conviction fund, with a minimum investment of $10,000.
With the help of Sequoia Asset Management’s chief executive John Collignon, who is organising the retail flows, the fund is expected to reach $100 million under management.
Although it’s a global fund, Aitken hasn’t entirely given up on the local market. But these days for him it’s about looking for companies around the world that are growing.
“There’s greater growth outside of Australia. And we do think over the next 10 to 20 years the next generation of Australians will lose the home bias in investing a little bit. Australia is 2.5 per cent of the World Equity Index – Australians have 63 per cent of their assets in domestic assets. We think that will change a little bit over the next 10 to 20 years, in favour of global.”
So what stocks is he invested in right now?
“Our biggest global holding is a company called Tencent out of Hong Kong, it’s a Chinese internet giant which has been good for us, we think it encapsulates everything in the Asian world that Google and Facebook do in the developed world” he says.
Aitken as also come up with another acronym for the digital economy that is shaping up as the only avenue of growth available in a low growth world.
As the broker who came up with “TINA” – which stands for There Is No Alternative – this time it’s the fund manager that has come up with “MAFIA”, Aitken’s acronym for Microsoft, Alphabet, Facebook, IBM and Amazon. He favours them all but is particularly bullish on Facebook saying it can grow by 30 per cent per annum over the next three years.
“They are extracting economic rent from all of us on a daily basis and their investment case is compelling” he said.
But there are others.
“If you look at things like Visa and Mastercard, think about your everyday life, you go down get a coffee and just tap and go with Visa, Visa gets half a cent for every time you do that. Visa’s earnings were sensational, they do a $US7 billion buyback every quarter, the thing’s on 23 times earnings,” he adds.
“In my view I would rather own Visa shares than Commonwealth Bank shares.”
New Zealand upside
Despite the bullish view on technology the fund doesn’t own Apple shares but in scouring the world looking for growth opportunities it just so happens New Zealand has turned out to be a happy hunting ground for Aitken.
“New Zealand is a big beneficiary of global tourism, still one of the great tourism places of the world, the airline capacity has been going up sharply there, our biggest holding in New Zealand is a little thing that does campervan rentals in New Zealand called Tourism Holdings. Been growing at 13 per cent per annum, pays a 10 per cent dividend,” he says.
Aitken has also broken the golden rule of never investing in airline stocks. but points out there was nothing in the rule about trading airline stocks.
“Warren never said don’t trade them. Air New Zealand on 2.4 times EVE, PE of 4, dividend yield of 9 – it could be very, very cheap. You can buy airlines at a price and Air New Zealand is growing, it fits at all our metrics so we’ve built a small position in that.”
Closer to home the fund also has a few local stocks.
“We have investments in Australia, because we do think that there are stocks in Australia that stack up as globally competitive. We invest on a price to growth measure – so the idea is to look for companies that are growing.
“In Australia our three biggest holdings are Aristocrat, Star Casino and Treasury Wine Estates,” he says, adding that he doesn’t own shares in Crown Casino.
In recent times he has sold out of positions in Sydney Airport and Transurban, worried that with bond yields at record lows there’s not much point buying a bond proxies. Baby Bunting, Class Super and Link are other local stocks that pass the Aitken test.
Aitken is also short the S&P ASX 200 index through the SPI futures, which reflects his concerns about the top 20 stocks. He is also short Woolworths.
“We think the turn around’s premature there, that the market’s too early on that – we think the Tesco scenario will probably play out,” he says.
“Don’t get me wrong, we think that Woolworths is a great Australian brand, but Aldi is not going away, Coles is not going away. We don’t think Woolworths shares are going to fall apart but we think they’re not a bad hedge against Australia, and we don’t think it’s as easy as shutting down stores.
“Put it this way: You can’t cost-cut your way to greatness; you need to grow.”