Monthly summary December 2018
Economy and Indices
Markets are down again in December Australia to across the world.
Leading industry groups:
Property +4%
Utilities +2.9%
Consumer staples (grocers) 0.0%
Property trusts have received tailwinds from:
Some take-over bids
Being defensively placed (less volatile assets and steady income streams)
Some reporting +10-15% rental increases in a ‘low growth’ environment
Bottom industry groups:
Energy (oil and gas) -6.8%
Consumer Discretionary (Retail) -5.3%
Industry Sectors:
Energy companies have been strong performers for almost two years off the back of rising oil prices – although the gains since March this year have all been given up now since the fall from September.
Property companies are now leading the market higher since September, followed by the more volatile mining companies.
Health Care (CSL, COH etc) have performed well this calendar year, however since the market topped in early September, Health Cares have fallen the most – quickly followed by:
Consumer Discretionary
Energy
Industrials
Both Health Care and Industrials had some high-flying companies or Market Darlings. These companies were running hot before September, trading at what is traditionally deemed ‘expensive’ - through a calculation of their annual earnings compared to the company’s total worth (price-to-earnings-ratio or ‘PE’).
To justify the high PE or high share price, many investors had priced these companies to perfection. Meaning their expectations were nothing short of perfection and if the companies (and global economies, interest rates etc.) didn’t keep reporting perfect growth numbers, the share prices would tumble – which they have. In a way, the bigger they are, the harder they fall, and such was the case for many top performers in October.
Segments (large, mid, small etc):
There have been few places to hide as the market has come down.
The group of the smallest companies (Emerging Companies) have fallen the most over the last 12 months: -16.3%.
Mid-caps (holding a bunch of mining, mining services and industrial companies, have fallen -10%.
The rest of the market is down around -6% for the last 12 months
Summary:
Software, Internet, Energy and Bio-tech stocks have performed well for the last few years (domestically and abroad). The US is comprised of 47% of these leading companies, whereas the rest of the world is about 28%, hence their strong out-performance (similar to AU in the commodities boom 2004-07).
The leading market trends and thematics are currently being re-set. Adjusting a portfolio for new themes before there is confirmation that the theme will prevail is premature – we’re best off waiting until the other side of this movement before taking drastic action.
To keep our portfolios on track we should ensure that we’re not holding those that have become yesterday’s hero’s, keep most of the portfolios on watch until the new dominant driving force is defined and be prepared to make adjustments in the months ahead.
Have a holiday and New Year break.
