Roy Keenan from Yarra Capital Management shares insights with James Dunn from The Inside Network on the role of active management. The Inside Adviser
After the Hayne Royal Commission many advisers decided to steer away from large dealer groups in favour of becoming self-licensed. In the last six months, however, that trend has taken an abrupt turn.
ASX rallies on vaccine news
ASX rallies on vaccine news, cyclical rotation in full flight, Westfield (ASX:URW) jumps 43.5%
The ASX 200 (ASX:XJO) finished just 0.7% above open despite trading as much as 2.5% higher during the day on news of Pfizer’s (NYSE:PFE) successful vaccine trials.
For those interested, reports suggest that the treatment has 90% efficacy in protecting from COVID-19 transmission.
The process from here is the release of safety data from the trial of over 40,000 patients, the potential emergency approval in late November and finally worldwide production at best by mid-2021.
Markets and investors clearly liked what they saw, with the announcement triggering a global rally, e-commerce and other similar beneficiaries of the stay at home orders were sold off in favour of retail property, energy companies and banks.
Unibail-Rodamco-Westfield (ASX:URW) was the leader on the ASX adding 43.5%, yet the share price remains 60% below its pre-COVID highs.
This contrast is important given the size of the single day move and with most assets located in Europe, it is clear the company will remain under pressure for some time.
Rotation, rotation, rotation, energy the big winner, banks not far behind
As highlighted, there couldn’t be a more clear rotation out of companies that have benefitted greatly from the COVID-19 pandemic, ranging from glove maker Ansell (ASX:ANN) which fell 9.5% and Woolworths (ASX:WOW) which was down 4.5% into the most beaten down sectors.
Oil producers including Oil Search (ASX:OSH), up 16.5%, along with travel exposed companies, including Webjet (ASX:WEB), up 13.5%, may be seeing some light at the end of the tunnel.
Yet with such a strong recovery, the important question to ask is what are share prices now pricing in?
There have been huge rallies, sending many companies close to pre-COVID levels, but will they be able to achieve the same level of revenue and profits they did before?
Only time will tell, but one clear takeaway from today’s events is the growing importance of active management and investment selection evidenced by the ‘index’ return of just 0.7% but huge divergence in the performance of each constituent.
US rally tempered by reality, bond prices fall, gold falls as risk on mood grows
US markets pared initial gains on Tuesday night, the S&P 500 falling 0.1% and the Nasdaq 100 1.7% as reality set in.
Whilst this week’s rally was well behind the largest in 2020 in point terms, the size of individual stock moves was incredible.
Weakness has however crept into markets after the initial bout of optimism after it became clear the long road ahead before a vaccine would actually be produced at sufficient levels along with an unexpected pause in China Sinovac’s Brazilian trial due to a ‘serious adverse event’.
One of the biggest impacts of the news was on the US Government Bond rate, which spiked from 0.8% to close to 1.0%.
This is a positive for the economic recovery, but not those holding what are known as ‘long-duration’ Government bonds.
When interest rates increase it reduces the value of existing bonds resulting in capital losses, something not expected from ‘low risk’ assets like these.
Similarly, the gold price fell in USD terms from over US$1,950 to $1,890 as investors moved back to equity markets, burning those invested into ‘gold miners’ as opposed to Gold Bullion.
With inflation still in the outlook and volatility to continue, it still has a role to play, particularly in AUD terms.
