Welcome back to the show. In today’s instalment of Markets and Money, you’ll be treated to several emerging secular themes. That is, now that the rubbish month of May is behind us, we can look to the second half of the calendar year and see what’s ahead. But before we look ahead, let’s look behind one more time.
Did you know that in the month of May, not a single stock on the S&P 500 with a dividend yield of more than 4% rose by more than 10% for the month? On the other hand, there were at least five high-yield stocks that fell more than 10% for the month. And Friday didn’t help, with both the Dow Jones Industrials and the S&P 500 falling more than 1% in an ugly day.
We’re going to ask our friend Phil Anderson what he thinks about this. If you missed it over the weekend, Phil’s presentation ‘Remembering the Future: How to understand and profit from the Australian property cycle’ is now available on DVD. Phil told us in March that the new highs on the Dow were confirmation that a new credit expansion was underway and that it would make its way to Australian property prices, with a specific lag time.
Friday’s data from the Dow — and the general pummeling high-yield stocks took in May — could be a sign that the ‘hunt for yield’ is over. The hunt for growth may replace it. And if that’s the case, you could see some fund managers redoing their asset allocation strategies to chase growth. The chart below is evidence that it may already be happening.
The security above is an exchange traded fund that tracks an index of investment grade corporate bonds in the US. It’s only a year-to-date chart. But you can see that once May rolled around and government bond yields started to rise, investors dumped a proxy for corporate bonds. If that trend continues, you’d expect a much bigger rally in growth stocks and a sell-off in fixed income ETFs.
Our in-house trader Murray Dawes has been looking at ways to trade US ETFs. We’ll see what he has to say about the chart above. If it’s a tradable, this is a simple way for Aussie investors to have a punt on an emerging theme. There’s a bigger universe of securities like this in the US. To the extent they are proxies for a sector or an asset class, it makes virtually any macro idea tradable.
But an even simpler idea would be to ferret out the best growth stocks. And if it’s growth you want, it’s technology you’ll have to look at. We have another team on the case here in the office. Sam Volkering and Kris Sayce are just about ready to make their new technology project public. Stay tuned.
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From the Archives…
Why You Should Keep Your Portfolio Grounded in Cash
31-05-13 – Vern Gowdie
China’s City in the Sky
30-05-13 – Dan Denning
House Prices First, Stocks Second.
29-05-13 – Dan Denning
Why Natural Gas Could be the Next Crucial Industry for Australia
28-05-13 – Dan Denning
The Japan’s Nikkei is Starting to Crack
27-05-13 – Dan Denning
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