Since the beginning of 2012, the ASX banks have outperformed large cap resources stocks by 80 percentage points. Large cap resources have outperformed the smaller (mid cap) resources stocks by another 50 percentage points. See the chart at (VIEW LINK). Because of their market weightings, the portfolio allocations between banks and resources have historically been the single most important contributor to the investment performance of an Australian equity portfolio. Within resources, the cyclical gap between large and small companies has averaged out to zero over time. Everything else in Australian equities is of second order importance to these two calls: banks v resources and small v large resources. One of the rising risks for Australian equity investors is the bias to banks in portfolios that have not been reweighted to take account of a reversion in cyclical conditions.
John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
Great post John and this seems consistent with a couple of the wires in this mornings note. I.E. Emerging markets from Blackrock and the view from Avoca that an opportunity exists in small caps when dust settles on the resources space.