Two factors to decide if your ASX shares will make money in 2023: fund manager

ASX share portfolio manager Nick GuideraASX share portfolio manager Nick Guidera

Ask A Fund Manager

The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Eley Griffiths portfolio manager Nick Guidera warns investors which factors to look out for in 2023.

Investment style

The Motley Fool: How would you describe your fund to a potential client?

Nick Guidera: The Eley Griffiths Group Emerging Companies Fund invests in the smaller end of the Australian & New Zealand equities market — listed companies that are at an earlier stage of their lifecycle or growth journey. Typically these stocks are outside S&P/ASX 200 Index (ASX: XJO).

The fund typically consists of 35 to 55 stocks with an average market capitalisation as at 31 October 2022 of around $700 million.

The fund aims to outperform the S&P/ASX Small Ordinaries Accumulation Index (ASX: XSOA) over a rolling five-year period.

Eley Griffiths is a style-agnostic manager, meaning we can invest in both growth and value stocks, which is important through the cycle. We also look to invest across sectors, including resource and energy stocks, which are a large proportion of the S&P/ASX small ordinaries accumulation index.

We have an experienced and incredibly capable investment team that spends time researching and modelling small and emerging companies to identify the next successful listed company that is early in its life cycle. The team has traversed many market cycles, and is acutely aware of the factors that impact the smaller end of the Australian equities market — liquidity, volatility

This fund is appropriate for investors with “high” and “very high” risk and return profiles. This means an investor in the fund is typically prepared to accept high risk in the pursuit of capital growth with a medium to long investment timeframe. No returns are guaranteed. 

Investors should refer to the target market determination and product disclosure statement for further information or making an investment decision — these are available on our website. 

MF: Where do you think the market is heading?

NG: Markets are at a very interesting juncture right now. After dominating most of 2022, we expect the macro — central banks, economic data releases, bond yields, currencies — to continue to dictate the equity market direction in the months to come. 

This means we are likely to see continued volatility, selective outperformance from stocks and sectors with solid fundamentals that are insulated from the macro, and a requirement as investors to continue to be nimble and open-minded to the ever-changing market backdrop. 

For context, central banks globally appear closer to the end of the tightening cycle than the beginning with the pace and size of interest rate hikes set to slow significantly into 2023.     

The impact of tightening policy is being felt in economies all over the world with economic surveys pointing to a slowdown in demand for new orders, higher mortgage rates slowing housing markets, and in the US, consumers beginning to slow their retail spending. Locally, the consumer continues to be robust according to some recent company releases from Australian retailers — but the future does contain some uncertainty. 

China is showing signs of reopening its economy at a rapid pace, and loosening monetary policy to stimulate growth, at a time when almost every other bank is still maintaining higher rates. At a time when growth globally is seemingly harder to come by, the potential growth opportunity of this reopening may be tempting for many.

A recession in the US and Europe is now consensus among global economists. However, the timing and the severity is questionable.

Despite the economic challenges that persist, inflation remains elevated, albeit declining, and labour markets remain tight — unemployment low. Both these factors suggest central bankers will continue to need to raise rates in the coming months and maintain these tighter policy settings for longer.

Small-cap investors had a tough 2022, with the index down more than 20%; as such, valuations have been reset in some sectors.

Reporting season, which is due to kick off in February, will give further insights to investors as to whether the earnings expectations for smaller companies need to be revised down for 2023.

The outlook for earnings and the macro backdrop will ultimately dictate the direction of the market in 2023.

The post Two factors to decide if your ASX shares will make money in 2023: fund manager appeared first on The Motley Fool Australia.

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​​DISCLAIMER: This presentation has been prepared and issued by Eley Griffiths Group Pty Limited (ABN 66 102 271 812, AFSL 224 818) (EGG) as the investment manager of the Eley Griffiths Group Small Companies Fund and Eley Griffiths Group Emerging Companies Fund (Fund). The Trust Company (RE Services) Limited ABN 45 003 278 830, AFSL 235 150 (Perpetual) is the Responsible entity and issuer of units in the Fund. It is general information only and is not intended to provide you with financial advice and has been prepared without taking into account your objectives, financial situation or needs. You should consider the product disclosure statement (PDS), prior to making any investment decisions. The PDS and target market determination (TMD) can be obtained for free by visiting our website  If you require financial advice that takes into account your personal objectives, financial situation or needs, you should consult your licensed or authorised financial adviser. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. 

Neither EGG, nor any company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. Neither EGG nor Perpetual give any representation or warranty as to the reliability or accuracy of the information contained in this presentation. Any opinions, forecasts,  estimates or projections reflect judgments of EGG as at the date of this document and are subject to change without notice. Rates of return cannot be guaranteed and any forecasts, estimates or projections as to future returns should not be relied on, as they are based on assumptions which may or may not ultimately be correct. Actual returns could differ significantly from any forecasts, estimates or projections provided. Past performance is not a reliable indicator of future performance.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

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