Week In Review

The Australian, US and European displayed wide trading-ranges for the week with little ground made or lost (at the time of writing).

This week the Asian markets were down considerably.

The Australia market’s correlations often swing between the US, Indian and Chinese markets. Over the last month, the Australian market has had the strongest correlation with the Norway Exchange, while showing a weak linking to the US, UK and Chinese markets.

Sectors

Sectors on the ASX are a classification which is given to each listed company to describe the industry group they operate within.

The top three sectors this week were:

1. Gold

Newcrest (NCM) dominates this sector with about 50% weighting, however there is a reasonable spread for the remainder. In times of volatile world markets, gold often performs comparatively well, however this last month the gold sector on the ASX had a relatively subdued response considering the world market context.

The leading, mid-sized, Gold shares over the last year have been NST, SBM, SAR and RRL/

2. Consumer Staples

Woolworths (WOW) and Wesfarmers (WES, ‘Coles’) dominate this sector. This sector often out-performance the rest of the market in down weeks (in other words, they ‘fall less’ in terrible weeks).

WES and WOW both made announcements to market regarding their hardware ventures. WES adding more to a strong part of their business, while WOW dropping the weakest arm of their business.

3. Telecommunications

Telstra (TLS) dominates this sector with a staggering 78% weighting. It is fair to say that where TLS goes, the Telcos go. Telcos have been the second strongest sector on the ASX over the last 5 years (meaning TLS did well over the last 5 years).

What is worth noting is that Vocus (VOC) and TPG (TPM) are up 500% and 650%, respectively, over the last 5 years. This compares to TLS up 200% over the same period.

Despite the capital growth in both VOC and TPM, both companies still have low weighting to the sector as a whole.

The recent leader of this sector is the younger company SDA, listed in August 2014, is up 215% since listing. Although SDA is a small company and is not currently in the ASX200.

The Weakest sectors were:

1. Energy (oil and gas)

Energy is a cyclical sector and its performance is often a function of the world prices for oil and gas commodities.

The Groundhog Day questions keep getting asked whether STO, ORG and WPL are cheap enough to buy yet. These same questions are also being asked about BHP and RIO.

2. Financials (Excluding Property)

Financials (ex. Property (XXJ)) is dominated by the Big 4 Banks. Because of the Big 4 Banks’ dominance on the XJO this reinforces the ‘Beta’ driven market moves of this sector, which means because of XXJ’s sheer size on the XJO, it’s difficult for either index to move in the opposite directions.

Recently there has been a de-coupling of the large banks in Australia; CBA and WBC have fallen less than ANZ and NAB. This shows a higher risk has been attached the latter two, which appears to be attributed to a risk of raising more capital.

This week there have been market-talk of ANZ reducing their dividends, which showed as a terrible performance for the ANZ share price.

3. Materials (mining)

Materials are dominated by BHP and RIO, together making up 44% of the Materials index (XMJ).

The strongest contributing factor to Materials being down is BHP returning to prices last seen in early 2005. This fall is a combination of both company-specific news and world commodity prices that have not been helpful to this sector this week.

Segments

Segments are the classifications given to companies of similar sizes for their market capitalisation (total company value by share price).

Within the ASX Top 200, the segments are:

– The 50 largest (‘Fifty Leaders’) and generally called the ‘blue-chip’;
– The next 50 companies (from 51 to 100th largest) are the ‘Mid-cap’ shares; and
– The last 100 of the Top 200 (from 101 to 200th) are the Small-caps’.

This week the Small-Caps and Mid-Caps lead the market higher.

This is unusual after a market-wide sell-off the ASX has recently experienced, and especially after the Margin-Call selling noted in last week’s Week in Review.

The relative strength of the Small and Mid-Caps is testament to the demand for these sectors. This strength also implies a rotation from the larger cap shares (Blue-chips) to the ‘growth-engine’ (Small and Mid-Caps)

Market Darlings

These are the shares we all wish our portfolios were filled with – the leading shares of the leading groups on the ASX.

Leading Market Themes

Technology companies, mostly software/‘cloud’ related and non-physical solutions, are providing the strongest returns on the ASX. A lot of these companies are small and mirco-caps and some are not even in the All Ords index (XAO).

‘Inverse Oil Exposure’ has continued to perform well. These are companies whose bottom line is positively impacted by lower oil prices. Examples are SYD, QAN and other transport related companies. One small-cap to note is ZNZ who import, distribute and sell transport fuel.

Consumer Discretionary shares have continued to perform well, notably: professional services, auto companies, food, media and entertainment companies. There are significantly more Consumer Discretionary shares in the Mid-Cap index (XMD) than the Top 50 (XFL) which has helped the Mid-Caps to continue to provide strong returns over the last six months. Given the small weighting the Mid-caps have on the XJO, the positive movements over the last few months have been negated by the largest companies in the XJO.

Retirement related services also continue on a steady rise. These shares range from retirement homes, healthcare facilities and ageing services and technologies.

Food related producers/distributors are also performing well although are only represented by small market capitalised companies.