Fund Managers Adjust Holdings in Major Australian Companies
On Friday, Commonwealth Bank of Australia (CBA) shares saw a slight dip of 0.5% to $161.82, while CSL Ltd experienced a 1% decline, closing at $116.48. This trading activity comes as portfolio managers at Blackwattle Large Cap Quality Fund, Joe Koh and Elan Miller, have detailed their strategic decisions to hold less of the nation’s largest bank and more of its leading healthcare company. Their approach contrasts with the benchmark S&P/ASX 200 Accumulation Index, where CBA holds a significant weighting.
Underweighting CBA Amid Tax Reform Uncertainty
Koh and Miller have adopted an underweight position in CBA, a strategy they credit for contributing to the fund’s outperformance in May. Their assessment follows CBA’s recent Q3 update, which, despite stable net interest margins and robust lending growth, narrowly missed consensus earnings estimates by a small margin. The managers cited this earnings miss, coupled with what they perceive as an expensive valuation for CBA shares and apprehension surrounding potential tax changes impacting negative gearing, as key factors in their decision.
These concerns were amplified following the Federal Government’s proposed tax reforms in the 2026-27 Budget. These changes, described as the most significant since the introduction of the GST, include modifications to capital gains tax (CGT) and limitations on negative gearing for new property developments. This has led Koh and Miller to anticipate adverse effects on the banking sector.
“We anticipate slower credit growth moving forward, as well as increased risk of bad and doubtful debts, given that individuals are already feeling the impact of the RBA’s rate hikes, higher fuel prices, and increased inflation,” the managers stated. “We believe the Budget will place increased pressure on the banks’ operating margins, increasing the risk of earnings downgrades.”
Australian home loans constitute approximately 63% of CBA’s total loan book, with about one-third of these loans extended to investors. Year-to-date, CBA shares have seen a modest increase of 0.4%, slightly outperforming the S&P/ASX 200’s 0.3% gain.
Overweighting CSL as Healthcare Sector Recovers
In contrast, the Blackwattle Large Cap Quality Fund has moved to an overweight position in CSL. This shift comes as the broader ASX 200 healthcare sector shows signs of recovery after a challenging year. The S&P/ASX 200 Health Care Index reached a nine-year low on June 3rd, having fallen over 40% in the preceding 12 months. Since then, the sector has seen a 15% rebound as investors identify potential value.
CSL shares have been a notable beneficiary of this renewed investor interest, rising 26% since early June. The company’s share price had previously experienced a significant downturn in early FY25, stemming from issues beyond general sector weakness. CSL has issued revised earnings forecasts, with FY26 revenue now projected around $15.2 billion and NPATA (excluding restructuring costs and impairments) around $3.1 billion, both on a constant currency basis, falling short of earlier market expectations.
Furthermore, CSL intends to recognize approximately $5 billion in non-cash, pre-tax impairments across FY26 and FY27. Despite ongoing caution from the market, including the pending appointment of a new CEO and a competitive environment, Koh and Miller express confidence in CSL’s potential for recovery. They noted, “While previously underweight this stock, the Fund has recently moved to a small overweight position given the stock’s now more attractive valuation, which sits at a substantial discount to the ASX 200.”
CSL shares are down 32% year-to-date and represent 2.1% of the S&P/ASX 200 Accumulation Index.
