When we think of big names on the S&P/ASX 200 Accumulation Index (Index), we tend to think of household names like BHP, Commonwealth Bank, or CSL. So, with the Index already home to so many of these blue-chip stocks, is there any room left for growth?
According to Portfolio Manager of the Fidelity Australian High Conviction Fund and Active ETF, Casey McLean, it’s a fair question. One of the largest exposures in the Fund is CSL*.
Despite its size, McLean believes there is still great growth potential. The company was formed back in 1916 and in the past 30 years has had a strong growth profile. In the last year* alone, earnings are up 20% and going forward, Casey expects them to continue to be able to generate earnings in the mid- teens over the medium-term.
Over the next few years, the company will be driven by its core blood plasma business and has a long history of steadily compounding earnings. In the near term, the growth of the blood plasma business could be even stronger from a combination of recovering volumes, increasing yields and optimising donor payments.
On top of this, McLean has confidence in the quality of the CSL management, in particular their ability to derive value out of acquisitions over the long-term.
Adding value beyond the large caps
While the Fund’s largest holdings are large cap stocks, this concentrated broad-cap strategy allows for a variety of stocks, including small-caps. McLean is one of few fund managers to manage an Australian portfolio of this kind.
Having a diversified portfolio such as this is a key mark of differentiation from the Index and what McLean calls the ‘sweet spot’; investing in small and mid-cap companies with growth potential and holding core large-cap names, to help manage risk and liquidity of the portfolio.
Small and mid-cap companies comprise almost half of the strategy’s portfolio, i.e., stocks with a market cap of $5 billion or less.
One company Casey holds, with a market cap at just under $1.8 billion*, is Polynovo. This biotech company focusses on the treatment of severe burns.
Its patented product, NovoSorb, effectively turns a large wound into a series of micro wounds, giving the body a scaffold to heal itself. Thanks to its myriad of benefits, this product is fast becoming the standard of care in the treatment of burns.
Furthermore, the burns industry generates about $1.2 billion globally per year, and Casey believes Polynovo are only at the very early stages of penetrating this market.
Many often complain that the Index is only comprised of big banks and big miners, but it’s evident that a myriad of opportunity for growth exists in the Australian market.
*As at 21 August 2024
