Rudi’s View: Equities Portfolio For 2021

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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 | Oct 29 2020

In this week’s Weekly Insights:

-Equities Portfolio For 2021
-World’s Worst Salesman?
-Rudi Talks
-Research Reports To Download

Equities Portfolio For 2021

By Rudi Filapek-Vandyck, Editor FNArena

Plenty of academic research suggests what matters most for investment strategies in the long run are asset allocation and portfolio composition.

Yet, it’s probably a fair statement to make most commentary and analysis in finance focuses on the direction of markets and individual stocks in the short to medium term.

Which is why my personal interest was piqued when I came across a recent strategy update by Wilsons, including an explanation and insights into the composition of Wilsons’ Australian Equity Focus List, which can serve as a model portfolio for investors looking for guidance for the year ahead, and beyond.

First up, Wilsons’ investment strategy is built around the observation that Quality and Growth, as identified through, respectively, return on capital and growth in earnings per share, outperforms the broader Australian share market over the medium/long-term.

This not only immediately explains my personal affinity, it also informs investors whose strategy is solely and religiously based on seeking out heavily undervalued assets; this is not for you.

Although, it has to be pointed out, nothing is ever as black and white and Wilsons’ approach does include (a few) typical ‘Value’ opportunities.

Structure Through Baskets Of Shares

Constructing an investment portfolio ideally starts with creating lists or groups of stocks that share similar base characteristics, after which decisions about which stocks to include in order to properly structure, weigh and diversify become a lot easier.

Wilsons has dropped the more traditional labels such as Blue Chips, Defensives and Cyclicals and opted for more refined qualifications that, dare I say it, seem better attuned to the general 2020 share market context.

Instead, the five baskets of equities identified are “Defensive Growth”, “Cyclical Value”, “Secular Growth”, “Cyclical Quality Growth” and “Asset Valuation Plays”.

While at first glance, it appears the concepts of “defensive”, “growth” and “value” are all represented, which can easily fool the inexperienced investor into the wrong impression and interpretation, all is not what it looks like on second consideration.

For example, the most important part of “Defensive Growth” is not the ‘defensive’ part. These are Growth stocks a la Amcor ((AMC)), Collins Foods ((CKF)) and Aurizon Holdings ((AZJ)) that are considered less volatile than your typical high tech, high PE multiple peers elsewhere.


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