• Christopher Hall

Wednesday's Weekly Wrap


Economy and Indices

The Australian market was up +0.7%, although still within the same tight, 120-point trading range of the last nine weeks.

Telcos are on the nose, Emerging Companies are the performance standout in the sideways market while the ASX continues to look 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. Materials +2.1%

  2. Health Care +1.7%

Bottom Sectors

  1. Energy -1.1% (was down -4% for the week until yesterday)

  2. Utilities -0.5%

Segments this Week:

Small-Caps took a notable lead this week +1.48%

In contrast to the past month, Emerging Companies, being the smallest companies or ‘micro-caps’, were the weakest performers this week +0.29%.

The rest of the segments were tightly knit, within 0.3% of each other.

Some of the stand-outs were mentioned in the most recent episode of Talking Stock.

Six Month Trends

Over the last six months Mid-Caps are still the strongest segment – despite this segment falling back in line with the rest of the market in a sideways churn. The leaders in this Mid-Cap segment are Bluescope Steel (BSL), Resmed (RMD), Cimic (CIM) and Aristocrat (ALL). However, these leaders have succumbed to the lacklustre AU market performance, and most have fallen back from their recent highs.

From a sector perspective, the only notable industry breaking ranks are the Telcos, lead by TLS dragging that group down -19%. For more insights on Telstra, listen to this week’s Rudi Tuesday here.

Market Trends

Emerging Companies (the smallest index on the ASX) have been the worst segment, down -13% at one stage. This group has now become the strongest performers in this sideways market; +6% over the last month.

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 and companies and which are evenly spread between Blue-Chips (Top 50 largest) and Mid-Caps (ranked 51-100 in size).

Property shares (LPTs and REITs) have been a haven for those seeking dividends. Although this group has been underperforming for weeks now. Hugh Dive takes a look at Cromwell and describes how to scan quality LPT and REITs in this interview.

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.

Following last week’s alarm bells for moving to cash after new highs, this interview with Gary Glover discusses four seasonality factors that most investors don’t know about.

While there is no conviction in the current market leaders, we’re keeping trading positions light and will 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.


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