In our view, the 'sleep-well-at-night' strategy of underweighting resources and industrial cyclicals, and overweighting growth/defensive/long duration stocks...
In our view, the 'sleep-well-at-night' strategy of underweighting resources and industrial cyclicals, and overweighting growth/defensive/long duration stocks has pretty much run its course. Small resource stocks are no longer underperforming and in some instances, are providing strong commodity price and share market performance, e.g. nickel. Industrial cyclicals - whilst still very stock specific - are also starting to level out and in some cases are bouncing strongly. What is behind this shift? In our view, the driving force is the global economic recovery that is starting to call into question the sustainability of generational low global interest rates. In turn, this is causing equity investors to question the sense in paying 25-35x for a high quality, long duration name, when you can pay 10-15x for cyclicals arguably at or near the bottom of their cycle with lower earnings risk than at any time post-GFC. (VIEW LINK)