Wednesday's Weekly Wrap
Economy and Indices
Once again, this week the Aussie market was flat, albeit volatile.
Property and Energy companies out-weighed the falls in Telcos (Telstra).
The Australian market is looking for a new leader; the leaders for the last 18 months have been broken and are falling the fastest.
Clients of many years will know that in times like this we look for the market to fall, to capitulate on the old investment themes. As all seems lost, we look for the next market leaders to emerge from the ashes. Within those ashes, we find the next market leaders to invest in.
At this stage – we lighten our exposure and wait for our time to strike.
Leading Sectors This Week
1. Property +2.5%
2. Energy + 2.1%
3. Consumer Staples +1.2%
Bottom Sectors
1. Telcos 3%
Segments this Week
1) For three consecutive weeks Emerging Companies, being the smallest companies or ‘micro-caps’, were the strongest performers this week +1.3%. Some of the stand outs were mentioned in the most recent episode of Talking Stock
2) Small-Caps (larger than Emerging Companies) were a close second place.
3) Blue-chips (XTL) were the worst performers, dragged down by Telstra (TLS)
Over the last six months Mid caps are still the strongest segment. The leaders in this Mid-cap segment are Fortescue (FMG), Bluescope Steel (BSL), Resmed (RMD), Cimic (CIM) and Arristocrat (ALL). However these leaders have succumbed to the lacklustre AU market performance, and most have fallen back from their recent highs.
Market Trends
Interestingly, over the last year Mid-Cap miners (excludes BHP, RIO, FMG etc) are up +51%, with a distant second going to Top 100 Resources (includes BHP, RIO, FMG etc) at +17%.
For more insights on miners coming into the reporting season, listen to my interview with Rudi Filapek-Vandyck here.
The Mid-Cap miners are a small group: AWC, BSL, EVN, ILU, NST, OZL (Strongest companies underlined)
The strongest sector groups for the last six months are:
- Healthcare (CSL, COH, RMD) +9% (down -10% over the last month)
- Info Tech (Mostly CPU) + 8% (flat for three months)
- Utilities (AGL, APA, SKI) +4% (down -11% over the last two months)
These leaders are mostly defensive industries with companies and are evenly spread between blue-chips (Top 50 largest) and Mid-caps (ranked 51-100 in size).
Outlook
An important point to note is that these sectors are the market leaders and the leaders are falling – which is not a promising sign.
Listen to my interview with Gary Glover here for more insight listening to the alarm bells of the market and why he’s moving to cash.
While there is no conviction in the current market leaders, we’re keeping trading positions light and wait for a wash-out or market fall. After such events, we look for the new leaders to emerge from the ashes because, statistically, that’s when our approach to markets generate the best returns.
More
For insights on how to use these trends and themes within a portfolio, watch The Portfolio Series here.
Many clients have asked about Sirtex (SRX) over the years; Hugh Dive takes a Torpedo Tuesday approach as I interview him about this former market darling.
Power storage solutions and the Telsa Powerwall are common conversation topics with investors. I interviewed Toby Lei about an Australian company, Redflow Limited (RFX) about how they’re positioned in this market place.
Online shopping is changing how we shop, and impacting the local retailers. I interviewed Kevin Hua to discuss how and why this is happening and importantly how we can invest with this thematic.
