Shares in the spotlight – Time to recalibrate your portfolio?
Rudi is one of Australia’s most followed market commentators and we are very excited that he’s presenting a webinar Reinventing Income in Australian Shares at the end of the month. In this article he outlines his thematic trends and those from UBS and Morgans.
Portfolio recalibration. We don't often hear about it, but we can be 100% certain that's what is happening, a lot, behind the curtains of the 2021 share market volatility.
Assuming the bond market is not yet ready to lay low, but the economic recovery goes on uninterrupted, this year's momentum trade should continue to favour:
- Cyclicals over Defensives
- Cheap & Value over Quality and Growth
- Small Caps over Large Caps
Of course, the above switch in market momentum has already been taking place since late last year. The public debate will therefore concentrate on how long this aberration from the past five years or so will/can/should last? The answer probably lays with how quickly portfolio re-adjustments can be executed, and how much damage this will/can inflict on last year's winners.
The dilemma for investors thus becomes: do I hold on to last year's winners, in the knowledge there is not necessarily anything wrong with the underlying companies I hold, and as certain as day follows night, portfolio switching will eventually have run its course? Or do we abandon losers and join the bandwagon of this year's new momentum trade?
The answer, I believe, probably lies somewhere in the middle. In particular given many a quality stock is already down 25% or more over the past few weeks. Conviction and an iron stomach may be needed for longer, though.
Those investors looking to re-calibrate their own portfolio, partially or otherwise, might take some inspiration from UBS's recent strategy update. In it, UBS strategists revisited the investment themes they believe are most dominant in this year's landscape, with favourites and best-to-avoid suggestions included.
Theme: Value stocks
Most preferred: Qantas (QAN), Downer EDI (DOW) and GrainCorp (GNC)
Negatively viewed: Air New Zealand (AIZ), Scentre Group (SCG) and Vicinity Centres (VCX)
Theme: Housing market
Most preferred: James Hardie (JHX), Boral (BLD), Super Retail (SUL), Adairs (ADH)
Negatively viewed: JB Hi-Fi (JBH)
Theme: Mining Services
Most preferred: Downer EDI
Negatively viewed: none
Theme: Defensive Growth
Most preferred: Charter Hall (CHC) and ResMed (RMD)
Negatively viewed: Ramsay Health Care (RHC), Fisher & Paykel Healthcare (FPH) and Cochlear (COH)
Theme: Income Stocks
Most preferred: APA Group (APA), Telstra (TLS) and Charter Hall
Negatively viewed: Atlas Arteria (ALX), ASX (ASX), Scentre Group, Vicinity Centres
Theme: Offshore Earners
Most preferred: James Hardie, Sims (SGM), Boral, Aristocrat Leisure (ALL) and ResMed
Negatively viewed: Domino's Pizza (DMP), Atlas Arteria, Brambles (BXB), Ramsay Health Care and Cochlear
Theme: Vaccine & Demand Rebound
Most preferred: Super Retail, Aristocrat Leisure and Nine Entertainment (NEC)
Negatively viewed: InvoCare (IVC) and Atlas Arteria
Theme: Vaccine & Demand Rescue
Most preferred: Qantas
Negatively viewed: Air New Zealand, Scentre Group and Vicinity Centres
Theme: Covid & Demand Boost
Most preferred: ResMed and Collins Foods (CFK)
Negatively viewed: Domino's Pizza, Ramsay Health Care, JB Hi-Fi and Fisher & Paykel Healthcare
Theme: Covid & Structurally More Demand
Most preferred: Charter Hall
Negatively viewed: none
Most preferred: IGO (IGO) and Sims
Negatively viewed: Western Areas (WSA) and Rio Tinto (RIO)
Another route to find inspiration is by looking back at the February reporting season. It's now well and truly behind us, but this year's script, blurred and ripped apart by rising bond yields and an appreciating Aussie dollar, has not necessarily rewarded the best performers with the most solid outlook.
Strategists at stockbroker Morgans have selected four major themes for the year ahead, including with best exposure suggestions:
Theme: Resilient Structural Growth
Most preferred: NextDC (NXT), Breville Group (BRG), ResMed, Magellan Financial (MFG), Universal Store Holdings (UNI), and Zip Co (Z1P)
Theme: Global Reflation
Most preferred: Santos (STO), Macquarie Group (MQG), Ansell (ANN), Aristocrat Leisure, Incitec Pivot (IPL), Nufarm (NUF), and Lovisa Holdings (LOV)
Theme: Key Vaccine Beneficiaries
Most preferred: Sydney Airport (SYD), Corporate Travel Management (CTD), Alliance Aviation Services (AQZ), and Baby Bunting (BBN)
Theme: Income Upside
Most preferred: Westpac (WBC), BHP Group (BHP), Aurizon Holdings (AZJ), Coles Group (COL), and Aventus Group (AVN)
Morgans has also updated its list of Best Ideas, now comprising of 43 ASX-listings (too many to repeat here) with all of the above mentioned names included. A few that might not necessarily be on investors' radar include: QBE Insurance (QBE), TPG Telecom (TPG), Eagers Automotive (APE), Redbubble (RBL), Booktopia Group (BKG), Jumbo Interactive (JIN), Volpara Health Technologies (VHT), Mach7 Technologies (M7T), Acrow Formwork and Construction Services (ACF), People Infrastructure (PPE), Strandline Resources (STA), Ramelius Resources (RMS), and HomeCo Daily Needs REIT (HDN).
An interesting observation was made by Morgans strategists in that favourite picks performed overall well throughout the February reporting season, but in most cases share price gains were made before the actual results release occurred.
Note: This article is for general information purposes only and shares mentioned are not recommendations.
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Join Rudi in the upcoming webinar Reinventing Income in Australian Shares, on Tuesday 30 March at 3pm, free for AIA members and just $15 for non members.