FNArena’s Weekly Insights – July 05 2021
In this week’s Weekly Insights:
-The Trend Is Still Our Friend
-Conviction Calls
-Research To Download
The Trend Is Still Our Friend
By Rudi Filapek-Vandyck, Editor FNArena
The ASX200 Accumulation Index, which combines share price appreciation with dividends paid, closed off on FY21 with a total return of 27.80%.
It wasn’t the best performance ever, also because back in 2007 the average dividend yield was higher, but eleven months of the twelve posted a positive return and every market veteran will assure us: this had never happened before.
Indeed, past data analysis conducted by Bell Potter’s Richard Coppleson revealed the best index performances in terms of number of positive monthly returns post 1993 had previously stopped at ten out of twelve. In the past 28 years only FY07 managed to post a better result, delivering 28.66% in total for investors.
As is standard practice, that formidable index performance was achieved amidst continuous calls for “too much investor exuberance”, “excess liquidity and cheap money-inspired bubbles” and predictions the next Wile E Coyote experience surely must be around the corner. It’s only a matter of time!
I have steadfastly believed such criticism to be misguided. Firstly, because financial markets look ahead and what they see is a sharp economic recovery, albeit not in a straight line, underpinned by supportive governments and central banks. Most importantly, however, is that share prices have been supported by strong, continuous upgrades to market forecasts.
For investors there is at least one valuable lesson to be learned from the experience of the twelve months past: never bet against a market that is supported by continuous upgrades to profit (and dividend) forecasts. In Finance, it’s not necessarily the actual data point that is most important, but rather the direction of the trend.
And the trend in profit projections, both in Australia and elsewhere, has thus far remained positive for ten successive months.
