The ASX 200 rose 3.8% in November buoyed by a decisive Republican victory in the US election. While the Trump victory helped equity markets surge on the prospects of continued resilient growth and potentially more policy stimulus (deregulation & tax cuts), the policy updates from China to support its domestic economy were once again, underwhelming.
The impact of the sharply different outlooks for the US and China was stark in terms of overall equity market price performance in November, in which Growth stocks overwhelmingly outperformed Value stocks.
During November we made two portfolio changes. We sold our position in Metcash (MTS) and reallocated the proceeds into a new position in Washington H. Soul Pattinson (SOL).
Metcash is contending with several challenges that weigh on its near-term performance and growth prospects, particularly in its hardware division. Declining activity across the housing construction pipeline, persistent margin pressures, and subdues trade activity have affected results. Despite cost-cutting efforts, fixed cost leverage remains a challenge, with labour and overhead costs outpacing sales growth. The discretionary nature of Total Tools, a major component of the hardware segment, heightens vulnerability to macroeconomic cycles. Furthermore, the illicit tobacco trade continues to impact independent retailers, with regulatory progress slow and outcomes uncertain.
Washington H. Soul Pattinson (SOL), a family-led, diversified conglomerate, combines strong fundamentals with a proven track record of long-term value creation.
Its underperformance relative to the ASX200 (~17% over the last 12 months) provides an attractive entry point. Originally rooted in Australian pharmacy ownership, SOL has transformed into a broad-based investment vehicle with substantial holdings across public and private markets, including key positions in Brickworks, New Hope Corporation, and TPG Telecom.
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