This sounds a bit like a ‘two-speed share market’
This is almost a reverse stack – the biggest companies fell the most, while the smallest gained the most.
Blue chips / top twenty (Big 4, TLS, WES WOW BHP RIO etc) are the dark green line, down -14%.
That’s most than ‘the market’ (XJO / ASX top 200) down ‘only’ -6.5%.
While the smallest companies are up 25% for the year (emerging companies (XEC)
- This sounds a bit like a ‘two-speed share market’, similar to the ‘two speed economy’ Rudd/Gillard were troubled with.
Why I hear you ask?
Always a magnitude of reasons, but here’s what has been dramatically different for AU investors this FY.
- Since March 2009, there has been great safety with buying blue-chip shares in AU. They were the backbone of the 2009 Calendar Year rally (Beta drive); and
- Since May 2012, when the dividend compression trade started, the companies that benefited had high Fully Franked dividends = Bluechip shares. That was as Term Deposit from 07-09 expired – think 5yr Term Deposit rolls over from May 07 to May 12 - and continued for two years. But the music stopped in May 2015 when CBA and TLS traded ex-dividend, the slide began as investors questioned growth prospects in blue-chips. We’re yet to see a definitive end of that movement – who know, maybe that’s today?
So what did we learn, who made money and how can that help us today?
- Investors learnt the safety of bluechips is not forever – growth is a crucial ingredient
- Small and mid-caps made money. They have been the darlings of the Financial Year; ALL, DMP, COH, ORA, VOC
- Emerging companies killed the rest +25%
- This tells us that the shift is well and truly underway; a 70% gain in ALL is a better return than -15% in CBA + 7%FF divvi
Case in point is WAM, the small company specialist on the ASX. Over the last year, they have been trading at +8% above what they’re worth, why? Because investors value their skill and expertise in this area – they’re up +14% + 7% FF divvies.
Where to from here?
The tide has changed, companies providing sound growth opportunities are rewarding shareholders with stronger share prices.
The leaders today are:
- Companies with scaleable business models (software)
- Small luxuries – the companies we spend money with to treat ourselves
- Building materials – the companies we spend money when doing small changes to our homes/renos
- Ag products that have stable market they supply
- Recently added by a select group of domestic engineering, O&G and mining services
And from a commodity front:
- Graphite and lithium – where old world mining meets new world technology
- Gold – de-stabilised currencies
Check back with us next week as we bring you the leading companies form these market-beating trends.
Christopher is head of equites at Spring Financial Group. Christopher has over 10 years' experience managing equities desks with thousands of retail clients and responsibility for maintaining and servicing retail and wholesale relationships.