Fisher applies this thinking at Airlie Funds Management, an active Australian equities fund manager. Airlie constructs and manages a concentrated portfolio of 25-35 companies, mostly from the S&P/ASX 200 Index. Unlike an index fund, Airlie aims to identify stocks that can potentially deliver a higher return than the market. 

Fisher is a portfolio manager of the Airlie Australian Share Fund (Managed Fund) (ASX: AASF). After establishing her career in equity analysis, Fisher joined Airlie in 2016. 

Today, she co-manages a fund worth $353 million [1].  Since its inception in 2018, the Airlie Australian Share Fund has outperformed its benchmark index [2].  

[Editor’s note: Do not read this commentary as a recommendation on AASF or active funds management. Do further research of your own or talk to licensed financial adviser before acting on themes in this article. Past fund performance is no guarantee of future fund performance. Active funds managers can underperform the sharemarket and concentrated equities portfolios can have higher risk and more volatile returns. Active fund managers also typically have higher fees than index funds.]

As part of its series on market participants, ASX Investor Update asked Fisher about her work as a portfolio manager and her views on investing. 

ASX Investor Update: Emma, what does a typical work day look like for you?

Emma Fisher: I usually wake around 5am to feed our eight-month-old baby, who hopefully goes back to sleep. We also have a two-year-old to get ready for day-care. Lately, I’ve had to explain to my daughter each morning why she can’t wear her baby shark costume to day-care. Book Week has a lot to answer for!

I usually get to work about 8am. I’ll skim the overnight and morning news and read the Australian Financial Review. Airlie gets sent a lot of broker research each day and I’ll sift through it for anything that looks interesting and has a longer shelf life. I’ll print off local or global research that I want to read later that day. 

There’s no typical day, but I tend to divide my work into two halves. I’m a morning person, so I prefer to do my deep-focus work early in the day. Assuming there have been no announcements from companies that Airlie owns, I’ll spend the morning working through results from the recent earnings season and updating my valuation models.

My afternoons normally have at least one or two external meetings. That could be with company management, an investor relations person for a company we want to learn more about, an external research provider such as a broker, or a provider of Environmental, Social and Governance (ESG) information on companies. 

Before investing, Airlie spends a lot of time talking to people in the company’s industry. That could be suppliers, customers or former employees who have a view on the organisation’s culture and management capability.

ASX Investor Update: How many stocks do you follow at any given point?

Emma Fisher: There’s normally around 30 stocks in Airlie’s portfolio. Then there’s another 50 stocks that we know very well. Often, Airlie likes these companies but don’t own them because they are fully valued. Airlie could buy them pretty quickly if the price moved. In addition, there’s probably another 50 stocks that Airlie knows pretty well but would need to do extra research on before buying.

ASX Investor Update: How do you follow stocks during the earnings season?

Emma Fisher: The majority of companies report their results in the last two weeks of August, so it’s a busy time. Most of Airlie’s work is done post-reporting season. We spend a lot of time going through earnings results and transcripts of conference calls with management. 

The period after earnings season is really important because it gives you a fresh look at a company’s performance. Valuations often move around a lot after an earnings result. We’re looking for companies that we like and might have been oversold.

ASX Investor Update: How do you choose which stocks to buy?

Emma Fisher: Airlie’s invesment process has four factors: balance-sheet quality, company quality, management quality and valuation. We quickly screen out stocks that have a poor balance sheet. Over the years, you get a sense of quality companies. Through regular meetings with management teams, you form a view on leadership quality. These factors tend to change slowly. It’s the fourth factor – valuation – that can change quickly.

We might think a compnay has a good balance-sheet, business model and management team. But we don’t own it because it’s expensive. So, we watch and wait for better value. If the stock falls 30% after reporting season, that could be a trigger for us to buy.

ASX Investor Update: Do you follow consensus estimates from analysts? 

Emma Fisher: Consensus estimates can be a big help if you want to understand the market’s view on a stock. Essentially, the consensus view (the average of combined analyst forecasts) tells you what the market is pricing into a company. We can then compare our view about a company to the consensus view. 

Usually, we don’t want to see our view sitting too far below the consensus because it will be hard for the stock to outperform. But sometimes you have a view that is very different to the market and it works.

ASX Investor Update: What are consensus estimates telling us about the market?

Emma Fisher: My sense is that consensus earnings estimates are currently a bit stale. That is, they are yet to adequately reflect the growing cost and wage pressures that companies are facing, given high inflation. 

We think consensus estimates for many companies are currently too high and will need to come down in coming months. Against that, many stocks are 20-30% off their peak, so you have to weigh up lower valuations against the risk of lower earnings growth. 

ASX Investor Update: How do you construct and manage the portfolio? 

Emma Fisher: Technically, our maximum position in any stock is 10% of the portfolio. Pragmatically though, a large position for us would be around 5-6%. That weighting is reserved for stocks where our conviction is highest. Typically, a stock will account for 2-3% of the portfolio. We might initiate a position at 2% and add it to if the price falls or as we become more comfortable about the company’s prospects. 

On average, we tend to hold stocks for about 2-3 years. Sometimes we own stocks for short periods because their valuation gap quickly closes, so we sell and take profits. Other times, we might hold a stock for years if it keeps performing and offers value.

ASX Investor Update: What is the portfolio manager’s role in funds management? 

Emma Fisher: Airlie has investment analysts who specialise in particular sectors. The analysts develop ideas and present them to the portfolio managers. The portfolio managers will test the assumptions and modelling behind the idea and decide whether to buy the stock. Sometimes that involves doing more work on the idea with the analyst. I might attend external meetings with the analyst to develop my conviction in the idea. Airlie goes through quite a rigorous process before adding stocks to the portfolio. 

ASX Investor Update: Why use an active fund over an index fund?

Emma Fisher: With an index fund [such as an Exchange Traded Fund] you get the median company quality in that index. With a well-chosen active fund, you should have exposure to much higher-quality companies. Ultimately, it depends on performance. If the active fund consistently underperforms, you are better off with an index fund.

ASX Investor Update: What’s been the fund’s best investment idea? 

Emma Fisher: Minerals Resources (ASX: MIN) has been the best-performed stock in Airlie’s portfolio since Airlie’s inception. Airlie bought the stock four years ago at $13 a share [Minerals Resources was $69.96 on 21 September 2022]. 

At the time, Airlie believed the market was ignoring the company’s mining-services business. Our research suggested the quality of this business was not reflected in Minerals Resource’s valuation. It was a good example of understanding the “market narrative” about a company and assessing that narrative against the valuation. Airlie thought the market was wrong and that turned out to be the case.

ASX Investor Update: What’s been the fund’s worst investment idea? 

Emma Fisher: Origin Energy (ASX: ORG) was frustrating for Airlie. The fund owned Origin for a few years and wore a lot of underperformance with that position. Airlie eventually sold Origin because of our concerns about the prospects for energy-market operators, which proved correct. But just as Airlie sold, the oil price took off, which helped the other part of Origin’s business (its investment in Australia Pacific LNG). 

ASX Investor Update: How do you deal personally with investment losses? 

Emma Fisher: As painful as it is, you have to recognise that the best learning experience you get in markets is when you make a loss. You have to find the time to identify the global lessons you get from a single bad investment, so you don’t make that mistake again.

ASX Investor Update: What have you learned about yourself through funds management?

Emma Fisher: I’ve learned that successful investing is about lifelong learning. I’m not nearly there yet. I’m always trying to learn and develop my skills. Fortunately, I work with a great team of people at Airlie. The longer you invest, the more you develop an instinct for market psychology. You realise that investing is about blending numbers and narratives. That’s what makes funds management so interesting and fun.

ASX Investor Update: What is one key piece of general advice you would give retail investors who are starting out on their investing journey?

Emma Fisher: On days when the market has a big fall, do nothing. If a stock you own is down 30% that day, do nothing. Turn off your screen, go for a walk or sleep on it.  Making rash decisions on the big down-days for markets can destroy wealth. 

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[1] At 31 August 2022

[2] The S&P/ASX 200 Accumulation Index. Performance figure to 31 August 2022.