September 02, 2020

September 02, 2020 | Adviser News


Fangin' IT

Patrick Noble, Senior Investment Strategist, Zurich Investments


It’s hard to believe the incredible gains that share markets around the world have made in recent months. Depressionary levels of unemployment and economic contraction have seen corporate profits plummet yet the returns from equity markets look remarkably resilient. Massive amounts of government support, negligible interest rates and promising vaccine developments have clearly helped sentiment, however beneath the surface it has been a select group of stocks that have lifted markets off their March lows.

Leading the charge has been the US and its set of glamour technology stocks. The likes of Facebook, Apple, Amazon and Google (Alphabet) have literally being ‘fangin’ it’, pushing major US indices back to all-time highs leaving all in their wake. Apple’s market cap has surpassed $2 trillion dollars and another crowd favourite Tesla, has seen its share price rocket in excess of 450% in 2020 alone. Their fortunes are in stark contrast to other parts of the market that continue to languish and has created a wide dispersion in valuations, polarising the market between ‘expensive’ growth stocks and ‘cheap’ value stocks.

Doing the splits

Still, the appeal of owning some technology stocks does make sense but is it a one-way bet? For now, flows into “FANG” ETFs and select tech stocks remain the popular choice for mum and dad investors but some multiples are in rarefied air.

Perhaps the only deterrent for investors has been high share prices rather than high valuations. Stock splits can solve for half this problem by lowering share prices, however this does nothing for overall valuations given the offsetting increase in shares. Nevertheless, the recent stock splits of Apple and Tesla are expected to make both more palatable to the average punter and while I admire the Cybertruck as much as the next person, Tesla’s valuation appears higher than a SpaceX rocket.

Focus, Focus, Focus

To be sure, not all growth stocks trade at similar valuations and in the tech space, many are benefitting from the digital transformation with attractive earnings profiles in their given industry.

But given growing index concentrations, are some parts of the market ‘over-owned’? Rather than obsessing between growth and value, could investors instead focus on unique opportunity sets that can deliver a diversified stream of returns in a portfolio?

Semiconductors, for instance, are one way that investors can capture value from digital transformation. Technologies ranging from electric & autonomous vehicles, through to 5G, AI and sensors are driving digitisation across multiple industries. These key components will therefore be demand beneficiaries.

While some pockets of the market may be ‘fangin’ it’, it does not mean portfolios should be on autopilot. A portfolio that focuses on differentiated opportunity sets can lean against market concentrations and exploit long-term structural trends delivering a diversified return profile regardless of prevailing market style.
 

 

Important information: The content of this publication are the opinions of the writer and is intended as general information only which does not take into account the personal investment objectives, financial situation or needs of any person. It is dated September 2020, is given in good faith and is derived from sources believed to be accurate as at this date, which may be subject to change. It should not be considered to be a comprehensive statement on any matter and should not be relied on as such.  Past performance is not a reliable indicator of future performance and should be used as a general guide only. Neither Zurich Australia Limited ABN 92 000 010 195 AFSL 232510, nor Zurich Investment Management Limited ABN 56 063 278 400 AFSL 232511 of 5 Blue Street North Sydney NSW 2060, nor any of its related entities, employees or directors (Zurich) give any warranty of reliability or accuracy nor accept any responsibility arising in any way including by reason of negligence for errors and omissions. Zurich recommends investors seek advice from appropriately qualified financial advisers. Zurich and its related entities receive remuneration such as fees, charges and premiums for the financial products which they issue. Details of these payments can be found in the relevant fund Product Disclosure Statement. No part of this document may be reproduced without prior written permission from Zurich.
Past performance is not a reliable indicator of future performance. GINN XYY9MQ.00000.SP.03. PNOE-015967-2020

September 03, 2020

Committed to you, your customer and the industry, today and always

Welcome to the first week of spring. As we look forward towards warmer weather, longer daylight, and hopefully happier, safer times, I want to send a big, heart-filled appreciation to our advice partners. Your willingness to adapt and change to your current environments is testament to your resilience and a signal of strength within our industry

September 03, 2020

It may be feeling more like summer, but winter is coming.

A lot of the working population are holding up pretty well financially so far during the pandemic. The chart below from Macquarie Research shows the sharp spikes in household cashflow driven by Government benefits and early superannuation withdrawals. Two elements of this – the second round of one-off $750 Government support payments and early super withdrawals - are unlikely to be repeated going forward. It is highly unlikely the early release of Super scheme will be extended, especially given calls from some union quarters that the Government should top up super for low income earners to cover their withdrawals. (Strange, I thought it was the individual who made the call to withdraw early, it wasn’t compulsory like contributions to super are). Of course, for some people this was a necessary evil to bridge the cashflow gap as (effective) unemployment rates soared. Regardless, this bounty has now come to an end.

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Podcasts to recharge your mental health

Hosted by EQ Minds Founder and Director, Chelsea Pottenger, this podcast series has been created for busy people who want to quickly get up to speed on health and wellbeing topics and tools. Chelsea brings listeners insightful interviews with leading health and wellbeing professionals from around the world and provides you with information and tools to help reset, recharge and navigate the challenges of everyday life.

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CPD points: Cognitive Bias and Ethical Decision Making

Join Dr. Matthew Beard, Fellow at the Ethics Centre as he explores how to identify and address ethical issues in personal and professional life. This webinar will introduce you to a decision—making process to help navigate these difficult ethical decisions. You will gain insight into how you can recognise the psychological and cultural factors that can obstruct ethical decision making, and learn how to neutralise them.

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September 07, 2020

Economic Update: COVID-19

Weekly Macro & Markets View