Window of opportunity for bargain hunters

Fiona Trafford Walker

The sub-prime fallout has created potential investment opportunities for long-term investors looking for a bargain, according to a leading figure in Australian equities.

Speaking at the second annual Fidelity Australian Equities Summit in Sydney yesterday, Frontier Investment Consultants managing director Fiona Trafford-Walker said the sub-prime crisis has created a six month window of buying opportunity for those willing to take on the potential risks.

“At times like this, depending on your perspective, it can be seen as an opportunity if you are a long-term investor prepared to think about quality assets that may be beaten up a little,” she said.

“However, you do need to be careful, as some assets have gone down and keep going down. I think a good example of this is Rams, which took many managers by surprise. Many bought in at the float and kept buying, then suddenly started selling, but by then it was too late.

“We spoke to managers in the US who basically said ‘give me a pot of money and I’ll sit and wait’. For instance, one US manager has raised a distressed asset fund 18 months ago and is now actively in the market just scooping things up.”

Trafford-Walker said it was surprising to find that many of her clients were not too concerned about the fallout and more interested in the possibility of profiting from it, and attributed this to the greater emphasis on financial education in recent years.

“On a whole, our clients had a reasoned response to the fallout. Many came to us and asked, ‘How can we make money out of this?’, rather then asking if we needed to go to cash,” Trafford-Walker said.

“I think if this happened five years ago many more would be worried about going to cash.”

According to Trafford-Walker, her company identified 18 months ago that there would be some form of fallout at some point and had managers ready to pick over distressed assets in the US.

“We were really surprised by the rebound in the market, and thought it would continue. But we still suspect there is more to come; further weakness in the market mainly on the back of people wobbling when sub-prime shakes in the US,” she said.