Why this fund manager is underweight BHP Billiton (ASX:BHP) shares

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ASX:BHP

The BHP Billiton (ASX:BHP) share price has gained 33 per cent over the past 12 months, making it one of the top performing ASX 200 shares in that period.

In August, the mining giant reported a huge jump in full year profits, lifting its full year dividend by 42 per cent. In response to the cracking set of results, BHP shares fell with the stock market wondering if FY18 was as good as it gets for the company.

BHP Chief Executive Officer, Andrew Mackenzie said the record final dividend for shareholders reflected strong operating performance, solid prices and capital discipline.

Writing in its August 2018 monthly update, the top performing Yarra Australian Equities Fund said it has a cautious medium to longer term view towards BHP’s commodity exposures, particularly iron ore and coal.

The fund believes fundamentals point to lower prices as new supply comes onto the market and China’s demand wanes from strong, stimulus-induced levels.

Furthermore, the fund says the ability for BHP to support earnings through lower costs appears increasingly challenged. Cost inflation is building and capex will need to increase to more historic levels, according to Yarra Australian Equities Fund.

The fund has an underweight position in BHP shares.

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au