FNArena’s Weekly Insights – June 28 2021

In this week’s Weekly Insights:

-And Australia’s Favourite Sector Is..?
-Rising Equities Are Getting Cheaper
-Time For Quality To Shine
-Gold’s Dubious Inflation Claims
-Conviction Calls
-All-Weather Model Portfolio
-Research To Download

By Rudi Filapek-Vandyck, Editor FNArena

And Australia’s Favourite Sector Is..?

What if I asked you which sector is the long term favourite among institutional investors in Australia?

Banks? Healthcare? Bulk commodities producers?

The answer will surprise you, as it is Consumer Discretionary.

Analysts at JPMorgan, who run a monthly survey among domestic fund managers and thus have access to a wealth of data, reported last week the Consumer Discretionary sector has been the most persistent Overweight in institutional portfolios in Australia.

Further adding to the sector’s favourite status among institutions, is the observation the average large Overweight positioning (relative to the actual index weighting) is well, well above the number two, which at present is the Materials sector.

The most convincing argument to prefer one sector over others is always the performance and here, JP Morgan reports, the justification aligns with Consumer Discretionary markedly outperforming the ASX200 over the past five years.

When I mention Consumer Discretionary most readers are probably thinking JB Hi-Fi ((JBH)), Premier Investments ((PMV)) and AP Automotive ((APE)), but specialty retailers only make up some 15% of the sector. 

The largest representation (40%) is reserved for Hotels, Restaurants and Leisure companies, which includes the likes of Crown Resorts ((CWN)) and Aristocrat Leisure ((ALL)), but also IDP Education ((IEL)), Webjet ((WEB)), Collins Foods ((CFK)), and SeaLink Travel Group ((SLK)).

As a matter of fact, Audeara ((AUA)), Mad Paws Holdings ((MPA)), BikeExchange ((BEX)), Harris Technology Group ((HT8)) and RedHill Education ((RDH)) are all part of Consumer Discretionary, but I doubt very much whether most institutions would know these companies exist.

Looking at the top of the sector, in terms of market capitalisations, I think the answers most among us are looking for are found in Aristocrat Leisure, Domino’s Pizza ((DMP)), IDP Education, JB Hi-Fi, Breville Group ((BRG)), Lovisa Holdings and ARB Corp, possibly also including Corporate Travel Group ((CTD)) and Webjet as the latter two would be featuring in this year’s re-opening trade.

Aristocrat Leisure had become the largest and most influential representative for the sector. Aristocrat Leisure has equally been one of the best performing large cap stocks on the ASX over the past five years or so. JP Morgan confirms it has been one of few ‘well-held’ favourites in Australia.

More recently the index changed significantly because of the inclusion of Wesfarmers ((WES)) post divestment of Coles ((COL)). Wesfarmers is now the number one in the sector, but, reports JP Morgan, still Australia’s institutions are overwhelmingly underweight the stock.

The top five for the sector, comprised of Wesfarmers, Aristocrat Leisure, Crown Resorts, Star Entertainment ((SGR)) and Tabcorp ((TAH)), now makes up 65% of the sector’s weighting.

The JP Morgan Model Portfolio is Overweight the sector by 102bp through Aristocrat Leisure, JB Hi-Fi and Super Retail ((SUL)).

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