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Chapter 3 – Increase flexibility & quality

We have already touched on increasing defensives and cash through 2022 but what stocks to hold in respective sectors and the market as we alluded to earlier ultimately dictates portfolio performance and as we expect shorter and sharper cycles opportunities to buy & sell are likely to present themselves at regular times – not being active enough on the sell side was probably our largest portfolio detractor last year.

As the chapters title suggests, we believe the cream will ultimately float to the top this year on the stock level with a few thoughts / ideas below to help explain this view in real terms:

  • Resources – Remain bullish overall with a skew towards future facing commodities, although will likely be active towards the sector as the year unfolds.
  • Banks – Likely to trim in general if we see fresh recent highs, our counter consensus view around yields declining is less supportive of the banks.
  • Technology – We still like profitable cash generating names into weakness, some of them are effectively excellent defensive plays.

With regard the defensive allocations, the below sectors / stocks are examples of the areas of the market to focus on.

  • Consumer Staples: Woolworths (WOW), Coles (COL) and Metcash (MTS).
  • Power: AGL Ltd (AGL) and Origin Energy (ORG).
  • Telcos: Telstra (TLS), TPG Telecom (TPG)  and Aussie Broadband (ABB).
  • Defence: Austal (ASB)
  • Life (or death): Invocare (IVC)
  • Infrastructure: Transurban (TCL), (APA) Group and Auckland Airport (AIA).
  • Property: National Storage REIT (NSR), Abacus Property Growth (ABP), Goodman Group (GMG)
  • Domestic manufacturing / Industrials: Incitec Pivot (IPL) and Amcor (AMC).
  • Healthcare: Ramsay Healthcare (RHC)
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