Rudi’s View: Citadel, Stockland & Expert Warnings

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | May 31 2019

In this week's Weekly Insights (this is Part Two):

-Conviction Calls, Part I
-In Quality We Trust
-Conviction Calls, Part II
-Rudi Talks

-Rudi On Tour

[Non-highlighted parts appeared in Part One on Thursday]

By Rudi Filapek-Vandyck, Editor FNArena

Conviction Calls, Part I

Asset managers at AXA Investment Managers are touring Australia this week and their central message is that, maybe, investors should start preparing for more volatile, tougher times ahead.

AXA IM itself, which manages some EUR750bn globally both for the French headquartered insurer and for institutional and retail investors (institutions only in Australia), has adopted the view that the current economic expansion in the USA and elsewhere is getting long in the tooth. AXA suggests it's time to start positioning for a different context for equities globally.

While acknowledging the past years have been fairly atypical with bond yields at all-time lows (if not negative) and with central bankers actively supporting risk assets, AXA managers still maintain attention should be paid to the historical cycle for corporate earnings. The typical cycle framework below was presented during a briefing with the local press on Monday.

It suggests that "value" investors might have to wait a whole lot longer until "low volatility", "positive momentum" and "quality" hand over the baton for leading performances in shares.

If AXA's assessment is correct, we are currently at an undefined point in the Late Cycle phase, implying at some point the economic cycle will turn for the worse, forcing investors to hide in stocks that look safer, carry less risks, are more reliable and robust, and less vulnerable to loss in economic momentum.

Interestingly, when asked about the observation that it might not have happened before that stocks of high quality are also trading on higher than usual valuations, Kathryn McDonald, Head of Sustainable Investing at AXA IM Rosenberg Equities, responded she still believes the underlying dynamics as represented on the stylised cycle overview should still prove valid.

If one looks closer into what is happening inside most of the world's quality companies, McDonald explained, one finds they are mostly not as expensive as they appear at face value. Even so, cheaper "value" stocks should prove more vulnerable when darker economic clouds announce themselves, so there's little use in trying to hide in cheaper valuation just for the sake of it.


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