Rudi's View | Mar 12 2021
Favourite theme-exposures and sector top picks from stockbrokers post the February reporting season.
By Rudi Filapek-Vandyck, Editor FNArena
Portfolio recalibration. We don't often hear about it, but we can be 100% certain that's what is happening, a lot, behind the curtains of the 2021 share market volatility.
Assuming the bond market is not yet ready to lay low, but the economic recovery goes on uninterrupted, this year's momentum trade should continue to favour:
-Cyclicals over Defensives
-Cheap & Value over Quality and Growth
-Small Caps over Large Caps
Of course, the above switch in market momentum has already been in place since late last year. The public debate will therefore concentrate on how long this aberration from the past five years or so will/can/should last? The answer probably lays with how quickly portfolio re-adjustments can be executed, and how much damage this will/can inflict on last year's winners.
The dilemma for investors thus becomes: do I hold on to last year's winners, in the knowledge there is not necessarily anything wrong with the underlying companies I hold, and as certain as day follows night, portfolio switching will eventually have run its course? Or do we abandon losers and join the bandwagon of this year's new momentum trade?
The answer, I believe, probably lays somewhere in the middle. In particular given many a quality stock is already down -25% or more over the past few weeks. Conviction and an iron stomach may be needed for longer, though.
Those investors looking to re-calibrate their own portfolio, partially or otherwise, might take some inspiration from UBS's recent strategy update. In it, UBS strategists revisited the investment themes they believe are most dominant in this year's landscape, with favourites and best-to-avoid suggestions included.