Episode 69 - FS360 Podcast - Mulcahy Investment Options perform extremely well

“We’ve always had a very disciplined approach to allocation, the way in which we manage those portfolios is to look at particular asset clauses, areas of the market where we think the investor may be better rewarded for the risk that they’re taking,” Tolub said.

“Those things can tend to work over the long term, but not necessarily in the short term.”

A new example of this has been Mulcahy & Co’s investment into Japanese equities across the past three years.

In the last 20 years these equities have commonly been laggards, however a structural shift in Japan has seen them become interesting options for investment.

“We’ve identified we think something’s changing structurally in Japan and from a price perspective it seems very attractive relative to a lot of other things, so might be a good time to initiate an allocation,” Tolub said.

“Those things are not going to turn around the minute that we invest in it and so it was probably the first six months to a year, nothing much happened with our Japanese equities.

“As it happened, about a year into it, the broader market came to the same realisation as us and Japanese equities ended up being one of the best performing equity markets in the world over a particular period of time and we benefited from that.”

The battle between wanting a short-term win versus a long-term vision on investments is a constant battle for investors.

While some short-term positions may not be fruitful, if they are the correct decision, they should pay off down the line.

“The last financial year we did well and a little bit above the industry, the financial year before that we did significantly below and the financial year before that we did significantly above,” Tolub said.

“We can’t control the short-term timing of our positions, but if they’re the right position then over time they will work and the three-year, five-year number will represent that.”

An area of focus for Mulcahy & Co portfolios and Investsense across the past five years has been property exposure.

“There are several ways you can create that exposure, our preferred way will always be through liquid assets, so you invest in a listed real estate investment trust in Australia,” Tolub said.

The impacts of Covid during the pandemic and the spike in interest rates post-Covid on large real estate holdings made them less attractive.

“The combination of those two things essentially created an opportunity for us (because) all those assets were really cheap,” Tolub said.

“We (introduced an exposure in the portfolios) and it’s been working very well over the last couple of years … to some extent the investment thesis has played out and it’s time to take some profits off the table. We did that and re-invested that into something new which is infostructure.”

Global infostructure allocation such as utility companies, airports and railways were the priority for Mulcahy & Co’s investment portfolios

“The market for those is very small in Australia … so purely Australian exposure is too concentrated. We’ve broadened that out and looked at opportunities everywhere in the world,” Tolub said.

“The story for those assets is essentially the rise of interest rates has really hurt them and they’ve become quite attractive as an outcome of that. That was the catalyst for us to sell down some of our property exposure and re-invest that into info-structure assets.”