Fund manager and analyst Neil Wesley originally trained as a classical pianist, but this 33-year-old Australian admits he made an early decision to opt for bourgeois comfort rather than ‘probable’ artistic poverty when he headed for university to study economics and finance. Since leaving the Royal Melbourne Institute of Technology in 1995, Wesley has racked up a great deal of investment experience: following a spell with KPMG as an auditor and roles with Portfolio Partners, which is owned by Morley Fund Management, he now works for Morley itself.
His current remit is broad to say the least, covering a range of sectors from luxury goods to banking and finance, and the turmoil in world capital markets – with stocks currently gyrating downwards in every continent – is making for a lively summer. ‘The market was previously looking very ‘toppy’ generally,’ he says. ‘Some stocks, particularly commodities, were looking very expensive, but the market is still looking reasonable value at 12 times P/E.’
So what of IRO contact? What does Wesley like to see from IROs, and what would he like to see less of? Wesley says he’s careful not to waste time on minutiae during face-to-face meetings, especially if management or a CFO is present.
Before this interview Wesley was on the phone with Royal Bank of Scotland, tidying up a question that couldn’t be clarified at a recent meeting. ‘We try and meet at least twice a year, post-full-year and interims,’ he says, ‘but we’re not shy and we’re only a phone call away.We like to see the whites of their eyes and ask questions direct. Sometimes an IRO will stick to their own script, so we’ll want to try and subvert that with our own questions and our own agenda. Also, management often prefers this. They’re so tired, often, of regurgitating the same old set speech.’
With an experienced management team, it can obviously be difficult to wrench open the group presentation to get under the chassis and have a good poke about. But asking open questions is an opportunity to explore and see where things go. ‘It’s often more about voice inflection and body language,’Wesley says. ‘I remember talking to this finance director about rising input costs like oil and transportation, before he let us know how sanguine he was about his company’s market. This led us to believe their forecasts were probably optimistic. Their costs were too high, so their stock, in terms
of earnings, really should have been downgraded.’
Wesley’s too discreet to be specific about particularly difficult IRO and management meetings. ‘Part of our success,’ he says, ‘is establishing a rapport with management. We don’t want to be seen as stabbing them in established forums.’ Nevertheless, IROs who get carried away with an inflated sense of their own significance certainly annoy. ‘They can overstep, particularly when the CEO is in full flight – they add more noise than content. It’s amusing when they don’t even realize the question isn’t aimed at them, but the CEO!’
Hot favorites
So what sectors are now looking particularly appealing? Wesley believes banking is a strong contender, though he feels you have to get past the current trend for bank-bashing to see it. ‘Look at what the Office of Fair Trading is doing,’ he says.‘Consumer advocacy, talk of more transparency… the industry does have high levels of profitability, so it’s an easy target. We’ve also been seeing bank-bashing in Australia, with their credit card enquiry. But we operate in a neo-liberal environment, and shareholders do own the company.’ In other words, why the big surprise at the fact that banks make money?
The bank-bashing frenzy is also a reminder that corporates now have to cultivate their SRI obligations. ‘What SRI does is help force a level of honesty,’Wesley says. ‘The investing parameters are still the same – and don’t forget that we’re all bound by ethical considerations anyway.We engage with companies at every level, particularly at AGMs. Our corporate governance team meets regularly with chairmen of companies to discuss salaries, or we invite them in. Generally, people don’t like surprises. It’s better to engage productively in private.’
One company Wesley particularly admires is household products firm Reckitt Benckiser, which not only has a very committed stance on CSR but also delivers real performance. ‘It innovates and invests and understands the power of advertising and promotion, and its management team has an excellent record in delivering too,’ he says.
From value to growth
As for investment styles, Wesley is careful not to straitjacket himself too tightly. Value investing has had a terrific run in recent years, and with the current tumble many value investors will still be glad to hang on to their steady dividends. Still, anyone reading the investment pages over recent months can’t have helped noticing the bugle call for ‘growth’ stocks.Wesley’s work at Morley is, he says, more biased towards ‘growth’, but he hedges a bit when asked to come down on one style or the other. ‘I don’t think it’s that clear where we’re at now,’ he says.
With the interview coming to an end, Wesley is gearing up to dash to a meeting. A last question: how does he feel about the quality of financial news coverage of stocks, given that companies shell out ever-larger amounts of shareholder cash to PR agencies to gain coverage and visibility?
‘The press,’ he responds immediately, ‘don’t pay enough attention to the real underlying rates of change. Maybe, for example, a company improves its earnings by X percent, but then you get dramatic headlines about the absolute number, which often says precious little about the underlying improvement of the company.’ Typical media histrionics – but not on these pages, of course.
