Stellar performer names top trends for future

WHEN an investor who’s delivered annual returns averaging 37 per cent over the past four years wants to speak, they’re worth listening to.

Rafi Lamm, co-founder of L1 Capital, has some clear views on where good money is likely to be made in the coming years, and an impressive track record behind him.

The L1 Capital Long Short Fund, which combines investing for growth with shortselling stocks it thinks are in trouble, delivered a 30.5 per cent investment return in 2017.

That followed a 29.4 per cent gain in 2016 and a whopping 60.5 per cent in 2015.

It has ranked among the world’s best hedge funds for three years, but is not in the business of aggressively chasing huge gains in the traditional hedge fund image.

Mr Lamm said L1 relied more on modest gains from many small investments rather than a few big winners, and this was a strategy that everyday investors should use as well.

“The key is to have a welldiversified portfolio across both sectors and regions, and to not get overly influenced by the latest fads,” he said.

L1 is currently raising up to $600 million from investors to create a new listed investment company, also called the L1 Long Short Fund, which will have an identical portfolio to its namesake.

Short-selling – which involves borrowing then selling a stock you don’t own to profit from share price falls – is a strategy used on about onethird of L1’s portfolio and has enabled it to generate gains during ASX down months.

L1 doesn’t name its shorted stocks, but says some of its winning investments have included BlueScope Steel, Sydney casino owner Star Entertainment and News Corp.

As for the outlook, there are a few ideas that sit brightly on Mr Lamm’s radar:

• Sectors where the Chinese government is “is exerting greater control” to prevent oversupply, such as coal, steel, aluminium and mineral sands, which could benefit Aussie stocks including Alcoa, AWC, Mineral Deposits and Iluka.

• Rare earths mining: “China provides roughly 90 per cent of the world’s rare earths and around a year ago 90 per cent of Chinese production was loss-making,” Mr Lamm said. “Australian company Lynas is the only significant Western world producer, and we think it will benefit.”

• Infrastructure, as big projects should mean rising profits for companies such Boral, Adelaide Brighton, CIMIC Group and Lend Lease.

• Tourists flowing in from China. “That benefits hospitality but has a tremendous flow-on benefit for Qantas. We think it’s not fully appreciated by the market,” Mr Lamm said.

“The key is living and breathing the market, loving investing and loving researching companies. Investing is not easy and you have to be 100 per cent committed.

“It’s a genuine mix of having lots of success stories but avoiding the big losses.”