From Jonathan Bayes, Chief Investment Officer, Partners Wealth Group.
Welcome back to all, and hoping that everyone had a relaxing few weeks break over Christmas and NYE.
It goes without saying that we wish you all a safe and sound year ahead in 2018, and that we can again put together some solid portfolio returns for clients.
I made mention late last year of the return profiles achieved on our model portfolios, and in the most part, we were again ahead. The decision to increase international equity positions this time last year paid off handsomely, but could have been even better had the AUD not surprised us to the upside.
I would again highlight that Australian and international shares are but a component of the recommended portfolios we put together for clients, and we are pleased to say that our defensive portfolio positions also beat their respective benchmarks in 2017.
Though we are still awaiting the final figures for December, we think our model portfolios have beaten the wider Australian benchmarks by over 1%, but we will confirm these figures in the weeks ahead.
As someone prone to err on the side of self-criticism, it was a pleasing end to the year, though we feel we have a lot more to give, particularly from the Australian share perspective. We are eager to put together a big year of outperformance in that asset class alongside total portfolio returns.
2018 starts on a positive tone
I am starting the new year in a positive mood. For those of you reading these weeklies, you will have noted that in the past 2-3 months I have become progressively more upbeat on Australia’s domestic economic prospects, and this is good news for local markets at least for the next 3-6 months.
The synchronised global economic rebound has finally made its way to our shores. In 2017 we experience stronger business confidence. And finally we are seeing this crossover to domestic consumers and to committed capital expenditure decisions.
Employment finished the year on a strong note. Resources markets continue to surprise to the positive, eastern seaboard major infrastructure is driving civil construction activity, and on the whole, there seems little reason to be ‘glass half empty’.
We will commit to print our 2018 thoughts by the middle of next week, but in short form, you should expect to see the ASX200 another 400-600pts higher by mid-year, fuelled by strong growth (Trump tax cut effect impacting the global economy), and earnings upgrades.
We expect the Australian corporate reporting season that commences in early February, to be filled with a more optimistic tone, and a stronger corporate profit outlook for most.
More cyclical exposures recommended
We are adding Downer (DOW) and APN Outdoor (APO) to our model portfolios as means for upping the economic sensitivity.
DOW is a direct play on improved capex intentions, and APO is a neat play on rising advertising spend.
December was a strong month for Australian advertisers.
On 15x 2018 earnings for both shares (10% cheap to the ASX200) and with the likelihood of earnings upgrades in 2018, we feel both stocks have +20% type performance in them in the year ahead.
Qube Holdings (QUB) is another cyclical exposure that we are taking a position in. QUB draws closer to announcing major tenant partners at its Moorebank Intermodal project in south-west Sydney during 2018.
Elsewhere amongst the cyclical stocks in our portfolios we would recommend clients ensure they are exposed to both SEEK (SEK) as additional leverage to an improving local economy.
SEK has already been exceptional for us in recent months, but I feel very strongly that it will be a $25-30 stock in the next 2-3yrs.
Quick weekly market re-cap
In the week just gone we have seen the stronger economy and a 3yr high in the oil price finally begin to impact on bond markets.
Australian 10-year bond yields have risen from 2.52% mid-December to 2.75% and will likely head higher in the early part of 2018.
Large Australian infrastructure players like Transurban (TCL) and Sydney Airport (SYD) have suffered on account of this as we suspected they might, and we think there remains considerable risk in holding these types of stocks through the early part of 2018 given risks to bonds.
Woodside (WPL) saw some good news this week with the WA premier promising to do everything in his power to ensure WPL greenlights a planned 1000km gas pipeline from the Browse gas field back to existing NWS infrastructure, effectively doubling the future life cycle of WPL’s original and key NWS LNG assets.
WPL and Oil Search (OSH) shares alike have sprung to life with the bounce in oil prices and both seem set for earnings upgrades again at their February results.
I will leave it at that this week since I will have a full run through of our 2018 expectations across to you in the coming weeks.
Have a great weekend.
Friday 1130am values
|S&P / ASX 200||6078||-44||-0.7%|
|Property Trust Index||1369||-26||-1.9%|
Wednesday Closing Values
|U.S. S&P 500||2767||+24||+0.9%|
For more information on the above please contact your Partners Wealth Group advisor directly or on 1800 333 143.