December 15, 2025 • 12 mins
As expectations shift from rate cuts to possible hikes, many investors are rethinking portfolio positioning. Tim Carleton, Chief Investment Officer at Auscap Asset Management, talks to Sean Aylmer about how investors should think about a turning rate cycle, why sentiment often overshoots reality, and where he’s finding value in healthcare and property despite rising rates.
This is general information only. Seek advice tailored to your circumstances before making investment decisions.
Find out more: https://fearandgreed.com.au/
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:06):
Welcome to Fearing Greek Q and A, where we ask
and answer questions about business, investing, economics, politics and more.
I'm Sean Aylmer. Interest rate cuts are probably behind us,
and next year we might see rates rising once more.
Today I wanted to look at what that means for investors,
how they can make the most of a rising interest
rate environment. Remember this is general information only, and you
(00:28):
should always seek advice before making investment decisions. Tim Carleton
is the chief investment officer at os Cap Asset Management. Tim,
Welcome to if you're in Greed Q and A.
Speaker 2 (00:37):
Thanks Shawn, It's great to be so.
Speaker 1 (00:39):
How to investors think about a turning point, particularly in
interest rates? And it seems to be where we are now.
Speaker 3 (00:47):
Yes, it's been a very interesting last couple of months.
It wasn't long ago that I think the whole market
was expecting a decline in interest rates, and now, if anything,
it looks more likely that we're going to get a
lift interest rates into twenty twenty six rather than continued declients.
I guess the way I think about that is really
in the broader context.
Speaker 2 (01:07):
Of the way that we invest.
Speaker 3 (01:09):
So there's an old adage in markets that In the
short run, markets a voting machine. In the long run,
they're a weighing machine. Put a different way. In the
short run, it's flow of funds that dictate the direction
of share prices. But in the long run, what really
matters is earnings. And as Howard Marks often quotes, markets
(01:31):
have this incredible ability to switch between extreme optimism and
extreme pessimism.
Speaker 2 (01:37):
Things go from being hopeless to being flawless and back
again in pretty short order.
Speaker 3 (01:42):
And so we think about tilting our portfolios when we
can take advantage of these extremes in sentiment. And so
when everyone was rushing towards the more cyclical names, a
lot of investors were doing that in the last six
to twelve months, assuming that intrat straits would decline meaningfully,
(02:03):
and as a result, we saw multiples in the consumer
space and in the financial space that were reasonably stretched
against history. And so at those times we're often thinking
to ourselves, we know that share prices have moved a
decent way away from fair value for some of those names,
and we want to rotate into the part of the market,
(02:24):
or the parts of the market where there's a disconnect
in the other direction, where investors are particularly negative and
sentiment particularly bearish in relation to certain sectors that aren't
flavor of the day. So in the last six months,
we have been reducing our exposure a little bit to
consumer aims and to some of the financial stocks that
(02:45):
we have been invested in, and we've been increasing our
exposure to companies that are in more defensive parts of
the market, and that certainly hasn't been flavor of the day.
So the two areas that really stick out for US.
Healthcare has had a pretty poor last couple of years,
and some of the valuations there are looking extremely attractive.
(03:07):
And then real estate has also been reasonably subdued, and
we think that there's some real value on offer in
parts of the real estate complex.
Speaker 1 (03:18):
Okay, so let's start with health care then, why? Because
many I mean starting with CSL, but many of the
healthcare stocks have really had a tough time of it
over the past twelve months or so. Why, I mean,
what's the catalyst for the turner? Is a pure valuation
story from your point of view, which within the sector
do you particularly like?
Speaker 2 (03:39):
I'm interested?
Speaker 3 (03:41):
Yes, I mean, as I said, our fundamental belief is
that the longer that you'll hold a stock or a
portfolio or a broader market. The more likely your total
return is going to be a function of two things,
and those two things are dividend yield and earning's growth.
So what you really want to hold for the duration
of a cycle businesses that you think will deliver an
(04:04):
attractive combination of dividend plus earnings growth. So we tend
to steer clear of companies that are facing a huge
number of earning's headwinds, particularly where we don't have any
visibility around the subsidies of those issues. So at the moment,
we're keeping a watching brief on CSL, but it's not
a position that we have been adding to or adding
(04:26):
to the portfolio.
Speaker 2 (04:27):
The two companies that we do really like in this space.
Speaker 3 (04:30):
One is Sonic Healthcare, so they are a global leader
in pathology. They also have a reasonably large domestic radiology business.
They had extraordinary.
Speaker 2 (04:40):
Profits through COVID.
Speaker 3 (04:42):
They were called on by the federal government to do
a lot of the COVID testing. They made a lot
of money through that period. They also had to lift
their cost base substantially. They hired a couple of thousand
extra staff to handle all of those volumes and healthcare
companies aren't normally in the habit of cutting star and
they've been very clear with the market that they certainly
(05:02):
didn't intend to cut the staff that they put on
that got Australia through its time of need. So as
a result, as the COVID testing volumes have come off,
they've been carrying a somewhat bloated cost base. They used
the COVID profits to go and buy a couple of
businesses of pretty decent scale in Europe, but they really
(05:23):
haven't contributed from an earning's perspective to any great extent
so far. So as we look forward, we think that
they've now right sized the cost bakes. It's taken them
a few years, and we should start to really see
the leverage coming through the business, not only as volumes
pick up, but also as we get some of the
synergies and uplift in gross margins from a few of
(05:45):
the acquisitions that they have made over the last three
or four years. And so this year they're pointing to
double digit earning's growth. We expect that you'll actually see
double digit earnings growth for the next couple of years,
and yet they are trading it close to the lowest
multiple of near term earnings that they have traded in
for more than a decade.
Speaker 2 (06:04):
So we think that's very interesting.
Speaker 3 (06:05):
The second healthcare name that we really like also exhibits
very strong earnings growth over time, and that's res Men
and so res Met are the global leader in the treatment.
Speaker 2 (06:15):
Of obstructive sleep up now.
Speaker 3 (06:17):
They've had a very long track record of growing their
earnings at double digit rates year in year out. At
the moment, there have been some concerns in the last
couple of years about the effects of GLP ones or
weight loss drugs. People have become concerned that it might
shrink the cohort of available customers. But what's missed by
(06:38):
investors that are worried about that issue is the fact
that this is a really underdiagnosed condition. A little over
two percent of people globally are aware that they have
sleep up there, which is the condition where you effectively
suffocate multiple times through the night as your airways close.
And Resmet have the dominant device that that solves for
(07:01):
that issue. It's called a CPAP machine. They sell not
just a machine that all of the masks and everything
else that go with it.
Speaker 2 (07:08):
And it fixes the problem immediately.
Speaker 3 (07:11):
And you know, in many instances, in many geographies has
pretty good reimbursement from local providers.
Speaker 2 (07:17):
So we think that issue is overblown.
Speaker 3 (07:20):
Resumes have actually been conducting a study for four years
now into the GLP one cohort. What they've actually found
is that GLP one uses more likely to initiate a
res MED CPAP treatment plan and more likely to continue
with it both one and three is down the track
than non GLP one takers. So we actually think GLP
(07:43):
ones might be a bit of a tailwind for res
Med rather than the headwind. But the fact that everyone's
jumped to the conclusion that it's a headwind has meant
that again it's trading it close to the lowest multiples
that we have seen for that stock in the last decade.
So too, pretty interesting stories that certainly aren't flavor of
the day that look pretty interesting to us over the cycle.
Speaker 1 (08:05):
Give me one property company then, because we're sort of
running out of time, But which is your favorite property
company then? And again, I mean when you're seeing interest
rates rise, that's not the time that investors tend to
rush to property companies because of course they hold lots
of debts, so higher interest rates means of holding more debt,
give me one.
Speaker 3 (08:23):
Yeah, Well, the story is actually one really of retail
real estate. That's our preferred exposure. We own two names
in that space, but the story is effectively the same.
So home Co Daily Needs Reat we really like and
Charter Hall Retail Read. They both own monopoly assets. I mean,
the one thing that you know people need to remind
themselves of is retail assets monopoly assets. Once you have
the built environment, it's very difficult to replicate those assets.
(08:47):
And so both of those companies, they're trading.
Speaker 2 (08:49):
With a north of six percent yield.
Speaker 3 (08:51):
We expect that they'll grow earnings at at least five
percent per annum through the cycle. So that's a pretty
low risk eleven percent plus type return, and that's before
they undertake any development or improve their portfolio through asset
recycling at all. They both have gearing towards the bottom
end of their range, so we're not worried about the
(09:12):
debt concerns that you might see at different points in
the cycle. And of course if it's inflation driving interest
rates higher, well they have the protection that you should
see that inflation coming through their revenue line. So both
companies are trading well below their tangible asset backing, and
we're seeing very very strong institutional demand for these assets.
(09:35):
So we think, if anything, the net tangible asset backing
is a little bit light on. So here you're getting
an opportunity to buy both of these businesses below their
externally validated valuation of the assets that they hold with
a pretty attractive title return combination.
Speaker 2 (09:52):
So we're excited about retail real estate.
Speaker 1 (09:55):
Okay, we're out of time, but there is one I
just want to ask you about. I can never get
my head around recent I mean, it's kind of not
widely held himply because the family, the Wilson family have
so much of it, but wow, they've been hammed. In fact,
I think it's the worst performing stock of the ASEX
two hundred this year. Yet, Tim Carlton, you think it
might be worth having a look at.
Speaker 3 (10:16):
I think anytime you see a significant shareholder, let alone
one that runs the business back the truck up, you want.
Speaker 2 (10:23):
To have a very very close look.
Speaker 3 (10:24):
So when the family go and announce a four hundred
million dollar buyback that they've now instigated through both an
off market and a subsequent on market buyback, that is
effectively the family spending two hundred and fifty to three
hundred million dollars of their own money buying stock at
a premium in the market. Well, listen, they've been hit
with a trifector of issues. They have seen a housing
(10:48):
slow down both in the US and Australia. In the US,
virtually every mortgage holder was able to fix their mortgage
for thirty years in the mid threes when interest rates
went to zero. Well, mortgage rates are currently in the
sixes and so no one's incentivized to sell their home
and move into another home because they'll reset their mortgage.
Speaker 2 (11:06):
Rate three percentage points higher.
Speaker 3 (11:08):
So housing turnover is really low and that's obviously detrimental
to a player like Reece, but we're starting to cycle
that issue. We've also seen a pick up in competition,
both in Australia with Tradelink and in the US, particularly
on the water works side, and so that's had a
depressing impact on earnings.
Speaker 2 (11:24):
But again we're starting to get through that issue.
Speaker 3 (11:27):
And obviously they've also faced tariffs and they've had to
try and pass on the increased costs to their customers.
So we've really had a trifecta of issues, but we're
now starting to get through that. And what you don't
want to lose sight of is this enormous opportunity to
build in the US what they already have in Australia,
which is a very dominant player in that plumbing market.
(11:49):
It's a market that's hugely fragmented and we think that
there's still a multi decade opportunity. And the fact that
the company has announced two reasonably aggressive buybacks implemented obviously
the first one of those, and the family have said
we've got no interest in participating in terms of selling
our stock into that buyback. We think that's a pretty
good reflection of the fact that you're very close to
(12:12):
that turn in the earning cycle for this business. And
if they see good value at thirteen dollars or higher,
which is where the buyback was priced, then you know,
I think if you're getting an opportunity south of that
to buy into the business, have an appropriate time horizon,
but we suspect it's going to be pretty good buying.
Speaker 1 (12:30):
Tim, thanks for talking to Fearing Greed. Thanks Sean Tim Carton,
chief investment Officer at os Cap Asset Management, and a
reminder to please seek professional advice before making investment decisions.
I'm Chanelle and this is fear and greed Q and
a
Welcome to Fearing Greek Q and A, where we ask
and answer questions about business, investing, economics, politics and more.
I'm Sean Aylmer. Interest rate cuts are probably behind us,
and next year we might see rates rising once more.
Today I wanted to look at what that means for investors,
how they can make the most of a rising interest
rate environment. Remember this is general information only, and you
(00:28):
should always seek advice before making investment decisions. Tim Carleton
is the chief investment officer at os Cap Asset Management. Tim,
Welcome to if you're in Greed Q and A.
Speaker 2 (00:37):
Thanks Shawn, It's great to be so.
Speaker 1 (00:39):
How to investors think about a turning point, particularly in
interest rates? And it seems to be where we are now.
Speaker 3 (00:47):
Yes, it's been a very interesting last couple of months.
It wasn't long ago that I think the whole market
was expecting a decline in interest rates, and now, if anything,
it looks more likely that we're going to get a
lift interest rates into twenty twenty six rather than continued declients.
I guess the way I think about that is really
in the broader context.
Speaker 2 (01:07):
Of the way that we invest.
Speaker 3 (01:09):
So there's an old adage in markets that In the
short run, markets a voting machine. In the long run,
they're a weighing machine. Put a different way. In the
short run, it's flow of funds that dictate the direction
of share prices. But in the long run, what really
matters is earnings. And as Howard Marks often quotes, markets
(01:31):
have this incredible ability to switch between extreme optimism and
extreme pessimism.
Speaker 2 (01:37):
Things go from being hopeless to being flawless and back
again in pretty short order.
Speaker 3 (01:42):
And so we think about tilting our portfolios when we
can take advantage of these extremes in sentiment. And so
when everyone was rushing towards the more cyclical names, a
lot of investors were doing that in the last six
to twelve months, assuming that intrat straits would decline meaningfully,
(02:03):
and as a result, we saw multiples in the consumer
space and in the financial space that were reasonably stretched
against history. And so at those times we're often thinking
to ourselves, we know that share prices have moved a
decent way away from fair value for some of those names,
and we want to rotate into the part of the market,
(02:24):
or the parts of the market where there's a disconnect
in the other direction, where investors are particularly negative and
sentiment particularly bearish in relation to certain sectors that aren't
flavor of the day. So in the last six months,
we have been reducing our exposure a little bit to
consumer aims and to some of the financial stocks that
(02:45):
we have been invested in, and we've been increasing our
exposure to companies that are in more defensive parts of
the market, and that certainly hasn't been flavor of the day.
So the two areas that really stick out for US.
Healthcare has had a pretty poor last couple of years,
and some of the valuations there are looking extremely attractive.
(03:07):
And then real estate has also been reasonably subdued, and
we think that there's some real value on offer in
parts of the real estate complex.
Speaker 1 (03:18):
Okay, so let's start with health care then, why? Because
many I mean starting with CSL, but many of the
healthcare stocks have really had a tough time of it
over the past twelve months or so. Why, I mean,
what's the catalyst for the turner? Is a pure valuation
story from your point of view, which within the sector
do you particularly like?
Speaker 2 (03:39):
I'm interested?
Speaker 3 (03:41):
Yes, I mean, as I said, our fundamental belief is
that the longer that you'll hold a stock or a
portfolio or a broader market. The more likely your total
return is going to be a function of two things,
and those two things are dividend yield and earning's growth.
So what you really want to hold for the duration
of a cycle businesses that you think will deliver an
(04:04):
attractive combination of dividend plus earnings growth. So we tend
to steer clear of companies that are facing a huge
number of earning's headwinds, particularly where we don't have any
visibility around the subsidies of those issues. So at the moment,
we're keeping a watching brief on CSL, but it's not
a position that we have been adding to or adding
(04:26):
to the portfolio.
Speaker 2 (04:27):
The two companies that we do really like in this space.
Speaker 3 (04:30):
One is Sonic Healthcare, so they are a global leader
in pathology. They also have a reasonably large domestic radiology business.
They had extraordinary.
Speaker 2 (04:40):
Profits through COVID.
Speaker 3 (04:42):
They were called on by the federal government to do
a lot of the COVID testing. They made a lot
of money through that period. They also had to lift
their cost base substantially. They hired a couple of thousand
extra staff to handle all of those volumes and healthcare
companies aren't normally in the habit of cutting star and
they've been very clear with the market that they certainly
(05:02):
didn't intend to cut the staff that they put on
that got Australia through its time of need. So as
a result, as the COVID testing volumes have come off,
they've been carrying a somewhat bloated cost base. They used
the COVID profits to go and buy a couple of
businesses of pretty decent scale in Europe, but they really
(05:23):
haven't contributed from an earning's perspective to any great extent
so far. So as we look forward, we think that
they've now right sized the cost bakes. It's taken them
a few years, and we should start to really see
the leverage coming through the business, not only as volumes
pick up, but also as we get some of the
synergies and uplift in gross margins from a few of
(05:45):
the acquisitions that they have made over the last three
or four years. And so this year they're pointing to
double digit earning's growth. We expect that you'll actually see
double digit earnings growth for the next couple of years,
and yet they are trading it close to the lowest
multiple of near term earnings that they have traded in
for more than a decade.
Speaker 2 (06:04):
So we think that's very interesting.
Speaker 3 (06:05):
The second healthcare name that we really like also exhibits
very strong earnings growth over time, and that's res Men
and so res Met are the global leader in the treatment.
Speaker 2 (06:15):
Of obstructive sleep up now.
Speaker 3 (06:17):
They've had a very long track record of growing their
earnings at double digit rates year in year out. At
the moment, there have been some concerns in the last
couple of years about the effects of GLP ones or
weight loss drugs. People have become concerned that it might
shrink the cohort of available customers. But what's missed by
(06:38):
investors that are worried about that issue is the fact
that this is a really underdiagnosed condition. A little over
two percent of people globally are aware that they have
sleep up there, which is the condition where you effectively
suffocate multiple times through the night as your airways close.
And Resmet have the dominant device that that solves for
(07:01):
that issue. It's called a CPAP machine. They sell not
just a machine that all of the masks and everything
else that go with it.
Speaker 2 (07:08):
And it fixes the problem immediately.
Speaker 3 (07:11):
And you know, in many instances, in many geographies has
pretty good reimbursement from local providers.
Speaker 2 (07:17):
So we think that issue is overblown.
Speaker 3 (07:20):
Resumes have actually been conducting a study for four years
now into the GLP one cohort. What they've actually found
is that GLP one uses more likely to initiate a
res MED CPAP treatment plan and more likely to continue
with it both one and three is down the track
than non GLP one takers. So we actually think GLP
(07:43):
ones might be a bit of a tailwind for res
Med rather than the headwind. But the fact that everyone's
jumped to the conclusion that it's a headwind has meant
that again it's trading it close to the lowest multiples
that we have seen for that stock in the last decade.
So too, pretty interesting stories that certainly aren't flavor of
the day that look pretty interesting to us over the cycle.
Speaker 1 (08:05):
Give me one property company then, because we're sort of
running out of time, But which is your favorite property
company then? And again, I mean when you're seeing interest
rates rise, that's not the time that investors tend to
rush to property companies because of course they hold lots
of debts, so higher interest rates means of holding more debt,
give me one.
Speaker 3 (08:23):
Yeah, Well, the story is actually one really of retail
real estate. That's our preferred exposure. We own two names
in that space, but the story is effectively the same.
So home Co Daily Needs Reat we really like and
Charter Hall Retail Read. They both own monopoly assets. I mean,
the one thing that you know people need to remind
themselves of is retail assets monopoly assets. Once you have
the built environment, it's very difficult to replicate those assets.
(08:47):
And so both of those companies, they're trading.
Speaker 2 (08:49):
With a north of six percent yield.
Speaker 3 (08:51):
We expect that they'll grow earnings at at least five
percent per annum through the cycle. So that's a pretty
low risk eleven percent plus type return, and that's before
they undertake any development or improve their portfolio through asset
recycling at all. They both have gearing towards the bottom
end of their range, so we're not worried about the
(09:12):
debt concerns that you might see at different points in
the cycle. And of course if it's inflation driving interest
rates higher, well they have the protection that you should
see that inflation coming through their revenue line. So both
companies are trading well below their tangible asset backing, and
we're seeing very very strong institutional demand for these assets.
(09:35):
So we think, if anything, the net tangible asset backing
is a little bit light on. So here you're getting
an opportunity to buy both of these businesses below their
externally validated valuation of the assets that they hold with
a pretty attractive title return combination.
Speaker 2 (09:52):
So we're excited about retail real estate.
Speaker 1 (09:55):
Okay, we're out of time, but there is one I
just want to ask you about. I can never get
my head around recent I mean, it's kind of not
widely held himply because the family, the Wilson family have
so much of it, but wow, they've been hammed. In fact,
I think it's the worst performing stock of the ASEX
two hundred this year. Yet, Tim Carlton, you think it
might be worth having a look at.
Speaker 3 (10:16):
I think anytime you see a significant shareholder, let alone
one that runs the business back the truck up, you want.
Speaker 2 (10:23):
To have a very very close look.
Speaker 3 (10:24):
So when the family go and announce a four hundred
million dollar buyback that they've now instigated through both an
off market and a subsequent on market buyback, that is
effectively the family spending two hundred and fifty to three
hundred million dollars of their own money buying stock at
a premium in the market. Well, listen, they've been hit
with a trifector of issues. They have seen a housing
(10:48):
slow down both in the US and Australia. In the US,
virtually every mortgage holder was able to fix their mortgage
for thirty years in the mid threes when interest rates
went to zero. Well, mortgage rates are currently in the
sixes and so no one's incentivized to sell their home
and move into another home because they'll reset their mortgage.
Speaker 2 (11:06):
Rate three percentage points higher.
Speaker 3 (11:08):
So housing turnover is really low and that's obviously detrimental
to a player like Reece, but we're starting to cycle
that issue. We've also seen a pick up in competition,
both in Australia with Tradelink and in the US, particularly
on the water works side, and so that's had a
depressing impact on earnings.
Speaker 2 (11:24):
But again we're starting to get through that issue.
Speaker 3 (11:27):
And obviously they've also faced tariffs and they've had to
try and pass on the increased costs to their customers.
So we've really had a trifecta of issues, but we're
now starting to get through that. And what you don't
want to lose sight of is this enormous opportunity to
build in the US what they already have in Australia,
which is a very dominant player in that plumbing market.
(11:49):
It's a market that's hugely fragmented and we think that
there's still a multi decade opportunity. And the fact that
the company has announced two reasonably aggressive buybacks implemented obviously
the first one of those, and the family have said
we've got no interest in participating in terms of selling
our stock into that buyback. We think that's a pretty
good reflection of the fact that you're very close to
(12:12):
that turn in the earning cycle for this business. And
if they see good value at thirteen dollars or higher,
which is where the buyback was priced, then you know,
I think if you're getting an opportunity south of that
to buy into the business, have an appropriate time horizon,
but we suspect it's going to be pretty good buying.
Speaker 1 (12:30):
Tim, thanks for talking to Fearing Greed. Thanks Sean Tim Carton,
chief investment Officer at os Cap Asset Management, and a
reminder to please seek professional advice before making investment decisions.
I'm Chanelle and this is fear and greed Q and
a
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Betrayal: Weekly
Betrayal Weekly is back for a brand new season. Every Thursday, Betrayal Weekly shares first-hand accounts of broken trust, shocking deceptions, and the trail of destruction they leave behind. Hosted by Andrea Gunning, this weekly ongoing series digs into real-life stories of betrayal and the aftermath. From stories of double lives to dark discoveries, these are cautionary tales and accounts of resilience against all odds. From the producers of the critically acclaimed Betrayal series, Betrayal Weekly drops new episodes every Thursday. Please join our Substack for additional exclusive content, curated book recommendations and community discussions. Sign up FREE by clicking this link Beyond Betrayal Substack. Join our community dedicated to truth, resilience and healing. Your voice matters! Be a part of our Betrayal journey on Substack. And make sure to check out Seasons 1-4 of Betrayal, along with Betrayal Weekly Season 1.