The FY25 half-year reporting season in February was marked by wide share price swings, with some companies delivering strong earnings while others faced ongoing macroeconomic challenges. Investors have had to remain selective and focused on long-term opportunities.
In this article, David Grace, Portfolio Manager, outlines AFIC’s response to opportunities and what it means for the remainder of the financial year and beyond.
A focus on healthcare opportunities
This reporting season revealed both overvaluations and opportunities, with certain sectors, such as technology and financials, experiencing significant swings in performance due to evolving macroeconomic conditions. Conversely, sectors like resources and infrastructure remained relatively stable.
One sector that stood out to AFIC was healthcare, with companies such as CSL and ResMed offering strong long-term prospects despite share price declines. Both companies remain category leaders in their respective industries, providing essential services at the lowest cost of delivery. As a result, AFIC increased its exposure to CSL and ResMed during this period.
“We saw the healthcare sector being sold off quite materially,” says Grace. “But we believe this created an attractive buying opportunity for long-term investors.”
“For CSL and ResMed, there’s sustainable low cost alternative to what they provide,” Grace explains. “Even with concerns around US tariffs or healthcare budget constraints, both CSL and ResMed are well positioned competitively, and their earnings profiles haven’t materially changed.”
Adapting to ongoing market volatility.
Broader market conditions have continued to evolve since the half-year reporting period, with concerns around US tariff policy, their impact on global trade, and ongoing global debt concerns adding layers of uncertainty to the market. Although its impact on the markets is currently being felt, AFIC remains focused on the fundamentals.
“When you're taking a long-term view, you can look through short-term disruptions and identify when a quality company is trading at levels that appear well below fair value,” says Grace.
This is particularly relevant to companies like CSL and ResMed, which continue to treat chronic conditions that require ongoing care. While the market fears healthcare spending could be materially reduced as part of broader fiscal tightening in the US, AFIC believes that companies like CSL and ResMed are insulated to a degree by their cost advantages and the critical nature of their services.
“ResMed and CSL are positioned to deliver margin expansion, which is relatively unique in this slowing economic environment. Most companies will be challenged to expand margins in these conditions, but we believe these two are well-placed to do just that.”
Outlook: Staying patient and ready
Looking forward, AFIC remains committed to its disciplined investment approach while keeping an eye out for emerging opportunities to continue delivering value to shareholders. The focus is on identifying quality businesses, maintaining a diversified portfolio and delivering consistent and sustainable returns for shareholders.
“The market moved materially with the recent tariff announcements. Leading into this period, we’ve been trimming holdings where we felt valuations were extreme. That has positioned the portfolio well by ensuring we have available cash to add to quality businesses at more attractive valuations when the opportunities emerge,” concluded Grace.