Searching for a Signal? Alphinity’s Stuart Welch Says Earnings Upgrades Matter Most

Why It Matters

Focusing on serial earnings upgrades lets investors capture price gains across sectors, mitigating risks from geopolitical shocks and high market valuations.

Key Takeaways

• Earnings upgrades drive share price moves, especially in resources.
• Alfinity targets companies with idiosyncratic earnings upgrade stories.
• Geopolitical risks like Iran war push portfolio toward defensive positions.
• Tech rotation seen as valuation shift, not immediate earnings decline.
• Style‑agnostic approach expands opportunity set to ~65% of stocks.

Summary

Stuart Welch, portfolio manager at Alfinity Investment Management, explained that the firm’s core thesis revolves around earnings upgrades. He argued that earnings revisions are the primary catalyst for share‑price movements, especially in resource‑heavy Australian stocks that have outperformed the U.S. after a robust February reporting season. Welch highlighted two beliefs: earnings drive prices and positive earnings revisions tend to be serially correlated. By modeling macro linkages—foreign‑exchange, interest rates, and consumer demand—Alfinity continuously updates forecasts, staying defensive amid the Iran‑war‑driven fuel price shock and the Reserve Bank of Australia’s rate hikes. The firm also sees the recent tech sell‑off as a valuation‑driven rotation rather than a fundamental earnings collapse. He cited concrete portfolio actions: trimming commodity exposure after a strong run, reducing bank holdings despite historically strong earnings upgrades, and adding positions in supermarkets, insurers and telecoms that exhibit idiosyncratic upgrade potential. A proprietary chart shows that, over the past decade, focusing on earnings‑upgrade stories expands the investable universe to roughly 65% of stocks, delivering more consistent returns than pure style bets. The takeaway for investors is clear: in an environment of geopolitical uncertainty and elevated valuations, targeting companies with ahead‑of‑expectation earnings and serial upgrade potential offers a defensible, style‑agnostic path to outperformance, while remaining vigilant to macro‑driven sector shifts.

Original Description

Australia's sharemarket had a strong run through February - outperforming the US, buoyed by a solid reporting season and a sharp rotation into resources stocks. But the mood has shifted since. The Iran war, sticky inflation, and consumers feeling the pinch have complicated the picture considerably.

Stuart Welch, portfolio manager at Alphinity Investment Management, sat down with Livewire to walk through how his team is thinking about Australian equities right now and why their answer to macro uncertainty is, largely, to ignore most of it - and to focus on the company earnings.

This interview was filmed 1st April, 2026.

Read the summary here: https://bit.ly/4t9sYyT

Timecodes:

00:00 — Introduction: Australian Market Recap

00:40 — High Earnings vs. Macro Risks

01:28 — How Earnings Drive Share Prices

03:09 — Tech Rotation: Is the AI Hype Real?

05:15 — The Biggest Risks to Your Portfolio

08:16 — Style Agnostic Investing Explained

09:53 — Recent Portfolio Changes: Banks & Commodities

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