From Jonathan Bayes, consultant Chief Investment Officer, Bentleys Wealth Advisors
Happy New Year to all.
2018 ended in plume of dark smoke as equity markets across the globe cratered. Increasing caution around the outlook for world economic growth drove the retracement, and in the U.S the S&P500 posted its worst quarterly performance since the GFC.
The S&P500 fell -14% in the quarter, whilst the ASX200 Accumulation managed to outperform falling by -8% in local dollars, and nearly -11% in U.S dollars.
The ASX200 fell by -3% in 2018, making it the first DOWN year for Australian equity markets since 2011.
Fortunately, since the start of 2019, markets have managed to recover about half of their losses, and in the case of the ASX200, markets today are a good +8% off the lows.
You will receive our ‘Investment Outlook’ piece for 2019 next week in the newsletter, so I won’t pre-empt all of that, other than to say that I would expect 2019 to be a similar year to 2018 in the sense that we will see bouts of share-market volatility, but that there ought be opportunity in good quality companies and in markets where value is more obvious.
We think Afterpay (APT), Challenger (CGF), Nufarm (NUF) and AMCOR (AMC) will do particularly well in 2019, and although regrettably BWX (BWX) had a torrid end to the year, I think that can rally +50% or more from current levels too.
Offshore we think international markets ex the United States stand a strong chance of outperforming in 2019, particularly Asian share-markets, and locally we would expect to see a rather flat end-result as the weaker local economy is cushioned by more attractive local equity valuations.
The Magellan Global Fund dominated its competition in 2019, rising by +9.8% against a gain of only +1.4% in world share-market values, so we were thrilled this was our top international holding.
In 2019 however, we think the non-US exposures of Orbis Global Equity Fund, Platinum Asia and Antipodes Global Fund should see these funds beat the market, and so we have been selectively increasing our holdings here in our models.
We think with the volatility likely to continue, our Diversified Fixed Income models should be a solid investment, and it’s my hope that this portfolio can deliver a 4%+ income return in 2019 before franking, based upon how it is structured at present.
Now, let’s take a quick look through what you might have missed over the Christmas break.
- The market sell-off in Q4 2018 was significant and did produce widespread capitulation in terms of the number of stocks impacted. Bizarrely, we see this as a good thing as it sets markets up for a more stable commencement to 2019, and unsurprisingly perhaps, markets have started the year well recouping half of their falls
- The market bounce has been driven in large part by the US Federal Reserve conceding they would be ‘patient’ with further monetary tightening if it looked like the global economy was facing fresh challenges, much like investors feared during the last quarter. This pragmatic approach has ameliorated some concerns the Fed might over-tighten and pre-empt a recession
- US economic growth did in fact take a tumble in the month of December, with trade issues certainly causing angst. Businesses halted forward orders, and confidence amongst companies big and small fell significantly from 20-year highs.
- On the trade front, the US have given China until the 1st March to negotiate a truce on trade or the US will continue with plans to slap tariffs on a further US$200bn of Chinese imports
- Apple (APPL) disappointed investors in early January with news that its December quarter revenues would be around 8% or US$9bn lower than previously forecast. APPL blamed its Chinese operations for the disappointment, which is likely true, but it feels like AAPL is facing a much wider problem across its handset business in the sense that consumers are upgrading their handsets at a far slower rate than before, thus reducing sales. It feels like there is more trouble to come in 2019 from AAPL.
- Australian Business Confidence took a tumble toward the end of the year, with the forward order outlook perceived as the worst in 3-years. It feels like the impact of softer housing and uncertainty over the Federal Election mean we will see a pretty slow start to 2019 from an economic viewpoint
- BWX (BWX) shocked the market with a further revision lower in their 2019 profit guidance, just 2 months after their previous cut. Faith in the company is at a significantly low ebb, and the shares are down -60% in the past few months, however we do think there is light at the end of the tunnel, and that BWX shares can rebound +50-75% in 2019 as its proven that underlying sales momentum has been regained
- Afterpay (APT) gave a trading update today which demonstrated continued stellar growth locally and in the new US business. APT now have 3.1m active users and the US business is starting to show signs of viral growth as well. The stock is +30% year-to-date already and we think its heading above $20+ before June.
- Healthscope (HSO) looks set to receive a formal bid from Brookfield early next week
- L1 Capital (LSF) had a torrid and disappointing year post-listing early in 2018, but did rebound soundly over the summer break, bouncing nearly 20% to be above $1.50 now. It’s far from perfect, but hopefully the start of a recovery
- Magellan Financial Group (MFG) reported excellent performance fee revenues for the last half, leading to further upgrades to earnings forecasts and vindicating our June BUY call. So far the stock has outperformed by +25% in the 6 months since our recommendation.
Hopefully that brings everyone back up to speed.
The rebound thus far in January is helpful, but we do expect it to peter out increasingly towards 6000 on the ASX200.
We are looking at the opportunity to TAKE PROFIT in a few key holdings in the coming fortnight, so stay tuned.
Again, we wish everyone a happy and healthy (and prosperous) year ahead in 2019.
Thursday 5pm values
|S&P / ASX 200||5850||+55||+0.9%|
|Property Trust Index||1434||+20||+1.4%|
Thursday Closing Values
|U.S. S&P 500||2636||+39||+1.5%|
Key Dates: Australian Companies
|Mon 21st January 2019||N/A|
|Tue 22nd January 2019||N/A|
|Wed 23rd January 2019||N/A|
|Thu 24th January 2019||N/A|
|Fri 25th January 2019||N/A|
For more information on the above please contact Bentleys Wealth Advisors directly or on +61 2 9220 0700.
This information is general in nature and is provided by Bentleys Wealth Advisors. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.