Which sectors provide more certainty of earnings in the present environment?
Sectors such as telecommunications, healthcare, aged care, retirement living and childcare provide revenue streams which are not heavily reliant on the economy. The smallcap market also provides investment opportunities in niche areas such as intellectual property services (IPH Ltd), automotive wholesale (Burson Group), consumer credit reporting (Veda Group) where revenue streams are relatively stable. There is a strong rationale for paying a premium for earnings certainty, as a lower level of earnings volatility makes accurate valuations easier to derive. More cyclical revenue streams are far harder to forecast, and therefore a lower quality. This premium is especially applicable in times of economic uncertainty, however cyclical stocks do present opportunities where the share price is factoring in overly bearish future outcomes.
Pengana Capital Group (ASX: PCG) is an ASX listed diversified funds management group specialising in global and Australian managed funds, with distinct investment strategies that aim to deliver superior risk-adjusted returns to investors.