Interpreting the last 12 months data both in Australia and overseas using traditional economic theory would lead to the conclusion that it is time to rotate the portfolio away from sectors with a high PE ratio and into those who represent 'value'.
If you look at the above graph you can see just how strong the outperformance of growth stocks has been.
The A-REIT sector has been particularly hard hit in the last 12 months, but it is a brave call to go into this sector broadly looking for value.
The question that everyone is trying to determine is whether the shift to value is now going to occur, and the growth story will come to an end.
The end of the growth story has been predicted for a number of years but has continued to outperform value. In June 2020 we saw some strong flows to value based ETF’s
However, I am not convinced the timing is right to be overweight in cyclical value stocks.
How do you balance a portfolio then? It goes against the grain to purchase a high PE technology stock as a defensive play, yet that is what a large part of the market has done during the Covid period. We did the same purchasing some selected IT holdings as both a growth and defensive position.
The answer is you cannot stick rigidly to any one strategy, you have to balance a number of approaches to blend your portfolio.
When we put our portfolio's together it is about a mix of value and growth, not one or the other. We want a blend of the best value and growth stocks.
When you seek growth you want to target your growth. Rather than just target Asia we have specifically targeted the IT sector in Asia.
When we search for value it is generally stock specific not broad based. Whilst we were happy to buy Goodman Group we have not invested in listed property generally this year.
There are a lot of short-term anomalies, so it is important not to get caught up in the noise and hype. At the same time, you need to understand if the fundamentals around you are changing and have the ability to challenge your views in a world which is constantly evolving.
For more professional retirement planning advice, call 02 9634 6698 or book a free consultation online with our expert financial advisors at our office in Sydney's Norwest.
Comments