Rudi’s View: Wesfarmers, WiseTech & Worley

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 | Apr 12 2023

-In this week's Weekly Insights:

-Market Leadership Has Changed
-Conviction Calls & Best Ideas
-Research To Download

-FNArena Talks

By Rudi Filapek-Vandyck

Market Leadership Has Changed

Investors are being reminded a healthy bull market is broad-based, with most segments of the share market participating.

The message that is currently doing the rounds on US equities is the exact opposite, with plenty of research highlighting this year's gains for major US indices can be traced back to only ten companies.

It's one of the quirks of indices. In the US four large index constituents make up more than one fifth (20%-plus) of the S&P500. The three largest constituents of the Nasdaq make up 30% of that index. In Australia, BHP Group ((BHP)) alone makes up 11% of the ASX200. Add CommBank ((CBA)) and CSL ((CSL)) and we have a similar outcome.

But in Australia this year's gains cannot be ascribed to the top 20% with only shares in CSL posting gains up until the Easter long weekend. BHP is slightly in the minus (if we exclude the dividend paid) while CBA shares are down by -3.5%, which is not fully offset by its half-yearly dividend.

While the implications are that most of US equities, and thus most US investors are still finding the share market a rather tough experience in 2023, in Australia the situation looks a lot more comforting. Some 60% of the local Top20 is sitting on capital gains, which suggests a different underlying dynamic in the land Down Under.

Scrolling through the ASX200 thus far in 2023 (Easter weekend), market gains have been carried by gold miners and an elite collection of commodity exposures (selected lithium, BlueScope Steel ((BSL)) and some iron ore) while the insurance sector, including insurance brokers, features as a stand-out performer, as does the automotive sector through the likes of ARB Corp ((ARB)), Eagers Automotive ((APE)), and GUD Holdings ((GUD)).

Two other easily identifiable groups are some of last year's laggards bouncing back hard and your typical defensives in Coles Group ((COL)), Telstra ((TLS)), Transurban ((TCL)), Wesfarmers ((WES)) and Woolworths ((WOW)). We can add the local healthcare sector to this basket as well.

Examples of laggards that are experiencing their moment in the sun this year are Boral ((BLD)), Brambles ((BXB)), Codan ((CDA)) Fisher & Paykel Healthcare ((FPH)), James Hardie ((JHX)), NextDC ((NXT)) and Orora ((ORA)), but equally so the aforementioned GUD Holdings, BlueScope Steel, and most household names in the local healthcare sector.

Positive performances have equally come from the creme de la creme -French for the best among peers- inside the local technology sector. TechnologyOne ((TNE)) just posted a fresh all-time record high, would you believe, but so has WiseTech Global ((WTC)), while Altium ((ALU)) is now approaching its peak from late 2021 and Pro Medicus ((PME)) shares are not far off last year's record high.

I have no doubt, your typical value-investor is now scratching his/her head, unable to explain how/why.

That head scratching might well continue for longer since many of the High Quality operators on the ASX are noticeably back in favour this year, including all but two of the 14 stocks on my list of All-Weather Performers, and all but one of the stocks listed as Potential All-Weather Performers.

Two observations stand out and should be on investors' mind (IMHO):

1. Australia is not simply copying the USA, there is a definitive local flavour in this year's market
2. The swing towards Quality and Defensives, including the proven, reliable performers in high multiple-sectors

Contrary to what today's year-to-date gains suggest, investors locally are well aware of the risks that lay ahead. It's why they prefer QBE Insurance ((QBE)) over Westpac ((WBC)), Telstra over Vicinity Centres ((VCX)) and Aristocrat Leisure ((ALL)) over Pointsbet Holdings ((PBH)).

I think that's the real message to take away from the above.

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