The last 6-months have been tough on a number of classic mainstay ASX defensives as a kick-up by long-term bond yields weighed on a number of names from CSL Ltd (CSL) to Woolworths (WOW) and Transurban (TCL). Obviously, there are more than just bonds influencing the share price of these companies, but their path this FY has some large similarities with the respective charts, almost perfect overlays in a number of cases.
The Insurance Sector caught our attention on a lacklustre day for the ASX, with a number of the main players enjoying a bid, e.g. QBE Insurance (QBE) +2.1% and Suncorp (SUN) +1.9%. This is one sector that generally enjoys higher bond yields as companies hold premiums in fixed interest before claims roll through; hence, with higher yields, this float simply earns more interest. We all know the RBA has hiked rates from 0.1% to 4.35% in around 18 months, providing a tailwind for the sector
The ASX200 enjoyed a solid Tuesday on the index level, but with less than 55% of the main board rallying, it was left to the influential big banks and miners to perform the heavy lifting, enabling the index to advance +0.3%. The sectors continue to jockey for position with a performance baton into a Christmas Rally potentially at stake. The last week has seen a clear difference on the performance front, with our preferred scenario being more of the same into Christmas:
Winners: Resources, Tech, Real Estate, and Healthcare.
Losers: Energy, Utilities and Consumer Staples.
A year ago, we went overweight the Tech Sector, which, after a few false dawns, eventually proved an excellent value add for portfolios. However, unfortunately, the local market failed to keep pace with the “Magnificent Seven”, i.e. the FANG+ Index hit fresh all-time highs overnight. In contrast, the local tech sector languishes over 35% below its 2021 high. We have now adopted a neutral stance towards US Tech. However, further upside is likely over the coming weeks; we are currently focused on levels to reduce exposure as opposed to increasing.
Global equities have bounced strongly over the last few weeks, with US Big Tech leading the charge; the FANG+ Index has surged over +17% in a matter of weeks, closing on Friday within a good day of fresh all-time highs. The “Big Tech Stocks” performance year-to-date is reminiscent of bull market days. However, 2023 has only been about a handful of stocks, the “Magnificent Seven”, with 50% of the S&P500 struggling to stay in positive territory in a year where the S&P500 index is up a healthy +17.6%.
Through 2023, the six stocks in the food sector have been split into clear winners and losers, with no middle ground. What caught our eye yesterday was that the four members that rallied came from the loser's enclosure and vice versa, i.e. some sector reversion was at play. The Food and beverage Sector has endured an awful four years, correcting ~40% as it had to contend with events such as severe weather patterns to Chinese tariffs, surging inflation plus, of course, COVID. As a sector, it looks very oversold, and a decent bounce wouldn’t surprise, but this area must be evaluated on a stock-by-stock basis.
We have written almost at nausea around bond yields through 2023, but while a potential reversal lower is gaining some airtime, the US 2s are still trading ~5%, as they have since July. If we prove correct and yields eventually dip back to where they spent most of Q2, the sector reversion that began a fortnight ago will be in its infancy. The MM Active Growth Portfolio is positioned for lower bond yields; hence, it outperformed by ~0.6% yesterday after enduring a tough couple of weeks when long-dated bonds made fresh 2023 highs through October. It's going to be a fascinating run into Christmas!
US inflation emphatically resumed its descent in October, pulling inflation closer to the 2-year low reached in June/July. Wall Street rallied strongly last night on inflation-fuelled optimism that the Fed's “endgame” is nigh, over 95% of the S&P500 advanced, with real estate and regional banks enjoying standout gains while the small-cap Russell 2000 Index outperformed, adding ~5.3%, well over twice the gain of the S&P500, i.e. in equities it was a big night of “risk on” and rebalancing portfolios as US 2 years plunged ~0.2% to below 4.85% and the $US fell -1.4%, the most since January.
ELD surged +18.28% on Monday after the agricultural services business delivered a small beat for FY23 - sales fell 4% to $3.3b, slightly ahead of consensus. However, cash conversion caught the eye with operating cash flow ~50% above consensus, helping the company to pay a 23cps div (30% franked), 7cps above expectations, i.e. the stocks now forecast to yield ~7% over the coming 12 months. The company has encouragingly managed costs far better than expected, and it appeared on Monday that many traders decided all at once that the reason for being extremely negative towards the stock had disappeared in one set of numbers.
The local Tech Sector is up +16.5% year to date, but it doesn’t feel like it when we enviously consider the surge back towards all-time highs by their US peers, local sentiment was not helped last week by sector heavyweight Xero (XRO) down -11%. We went overweight the local tech sector in anticipation of an aggressive rally into 2024 led by their US peers. We got a few pieces of the puzzle correct, but our Altium (ALU) and Xero (XRO) positions show a paper loss of ~1% - we hold these two stocks in our Active Growth Portfolio.
The Insurance Sector caught our attention on a lacklustre day for the ASX, with a number of the main players enjoying a bid, e.g. QBE Insurance (QBE) +2.1% and Suncorp (SUN) +1.9%. This is one sector that generally enjoys higher bond yields as companies hold premiums in fixed interest before claims roll through; hence, with higher yields, this float simply earns more interest. We all know the RBA has hiked rates from 0.1% to 4.35% in around 18 months, providing a tailwind for the sector
The ASX200 enjoyed a solid Tuesday on the index level, but with less than 55% of the main board rallying, it was left to the influential big banks and miners to perform the heavy lifting, enabling the index to advance +0.3%. The sectors continue to jockey for position with a performance baton into a Christmas Rally potentially at stake. The last week has seen a clear difference on the performance front, with our preferred scenario being more of the same into Christmas:
Winners: Resources, Tech, Real Estate, and Healthcare.
Losers: Energy, Utilities and Consumer Staples.
A year ago, we went overweight the Tech Sector, which, after a few false dawns, eventually proved an excellent value add for portfolios. However, unfortunately, the local market failed to keep pace with the “Magnificent Seven”, i.e. the FANG+ Index hit fresh all-time highs overnight. In contrast, the local tech sector languishes over 35% below its 2021 high. We have now adopted a neutral stance towards US Tech. However, further upside is likely over the coming weeks; we are currently focused on levels to reduce exposure as opposed to increasing.
Global equities have bounced strongly over the last few weeks, with US Big Tech leading the charge; the FANG+ Index has surged over +17% in a matter of weeks, closing on Friday within a good day of fresh all-time highs. The “Big Tech Stocks” performance year-to-date is reminiscent of bull market days. However, 2023 has only been about a handful of stocks, the “Magnificent Seven”, with 50% of the S&P500 struggling to stay in positive territory in a year where the S&P500 index is up a healthy +17.6%.
Through 2023, the six stocks in the food sector have been split into clear winners and losers, with no middle ground. What caught our eye yesterday was that the four members that rallied came from the loser's enclosure and vice versa, i.e. some sector reversion was at play. The Food and beverage Sector has endured an awful four years, correcting ~40% as it had to contend with events such as severe weather patterns to Chinese tariffs, surging inflation plus, of course, COVID. As a sector, it looks very oversold, and a decent bounce wouldn’t surprise, but this area must be evaluated on a stock-by-stock basis.
We have written almost at nausea around bond yields through 2023, but while a potential reversal lower is gaining some airtime, the US 2s are still trading ~5%, as they have since July. If we prove correct and yields eventually dip back to where they spent most of Q2, the sector reversion that began a fortnight ago will be in its infancy. The MM Active Growth Portfolio is positioned for lower bond yields; hence, it outperformed by ~0.6% yesterday after enduring a tough couple of weeks when long-dated bonds made fresh 2023 highs through October. It's going to be a fascinating run into Christmas!
US inflation emphatically resumed its descent in October, pulling inflation closer to the 2-year low reached in June/July. Wall Street rallied strongly last night on inflation-fuelled optimism that the Fed's “endgame” is nigh, over 95% of the S&P500 advanced, with real estate and regional banks enjoying standout gains while the small-cap Russell 2000 Index outperformed, adding ~5.3%, well over twice the gain of the S&P500, i.e. in equities it was a big night of “risk on” and rebalancing portfolios as US 2 years plunged ~0.2% to below 4.85% and the $US fell -1.4%, the most since January.
ELD surged +18.28% on Monday after the agricultural services business delivered a small beat for FY23 - sales fell 4% to $3.3b, slightly ahead of consensus. However, cash conversion caught the eye with operating cash flow ~50% above consensus, helping the company to pay a 23cps div (30% franked), 7cps above expectations, i.e. the stocks now forecast to yield ~7% over the coming 12 months. The company has encouragingly managed costs far better than expected, and it appeared on Monday that many traders decided all at once that the reason for being extremely negative towards the stock had disappeared in one set of numbers.
The local Tech Sector is up +16.5% year to date, but it doesn’t feel like it when we enviously consider the surge back towards all-time highs by their US peers, local sentiment was not helped last week by sector heavyweight Xero (XRO) down -11%. We went overweight the local tech sector in anticipation of an aggressive rally into 2024 led by their US peers. We got a few pieces of the puzzle correct, but our Altium (ALU) and Xero (XRO) positions show a paper loss of ~1% - we hold these two stocks in our Active Growth Portfolio.
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