10 Jun 2020
Momentum is the No 1 factor driving the sharemarket rally as investors pile into equities in the absence of a worthwhile alternative, Cyan Investment Management director Dean Fergie said.
Despite the market rocketing 35 per cent since its March lows, and amid fears of a potential second wave of COVID-19 battering the nation, Mr Fergie still sees an opportunity for investors to make “some very, very good returns” in the near term.
“We’re cognisant that there could be headwinds around the corner, but on the same note, there’s clearly a lot of momentum in the market … it just seems like it could have a sell-off but it might not have that sell-off until it goes another 20 per cent,” Mr Fergie told The Australian.
While avoiding lending, travel and discretionary-focused businesses, Mr Fergie has instead been deploying funds into education, software and health technology plays in recent weeks.
JB Hi-Fi and Jumbo Interactive are among the fund’s recent buys (it doesn’t view JB as a pure discretionary play due to its exposure to the recent surge in home office set-ups). Another recent investment the fund has made was in payments platform Quickfee, which has tripled its share price since March.
“We’ve positioned our fund such that we’re not in sectors that we’ve got real concerns about, like (stocks) that could be in the eye of the storm … we wouldn’t be that confident that we’d be owning a bunch of travel and entertainment businesses,” Mr Fergie said.
Bradley King, at boutique investment manager Armytage, said he wasn’t surprised the market was rising so fast after its swift correction and said he has been recycling capital rather than adding new money into the current rally.
“After the crash, and before we started to get a bit of a recovery, the stocks we were in that benefited quite well were things like Kogan, EML Payments, food staples such as Collins Foods,” Mr King said.
The fund also invested in companies it thought would recover reasonably quickly, including childcare and gaming stocks, as well as telecommunications. It also went hard into energy when the market was hit.
Mr King has been “taking a bit off the table” in those holdings and putting the money into other listed plays before they run hard.
“We bought Kathmandu a couple of days ago because we thought it would be a beneficiary of people travelling domestically.”
The fund bought Kathmandu at $1; on Tuesday the stock surged 12 per cent to $1.27.
Mr King has also been increasing the fund’s holdings in the banks, moving it from an underweight to neutral position due to the steep discount the sector is trading at relative to the market.
Eyeing up the biggest risks to the market, Mr King is watching the iron ore price very closely: “We need to keep an eye on that to make sure any escalation in trade wars doesn’t spill into (the iron ore price). We’re a nation that basically, all we do is build things and dig holes. We’re fairly concentrated, so that’s a significant risk.”
Mr Fergie sees a second wave of COVID-19 as the biggest risk, alongside the growing tensions in the property market. “You’ve got no immigration driving increased demand, interest rates are low and you’ve got unemployment rising,” he said. “You’ve also got banks looking at tightening their lending criteria and people who can’t pay their mortgage.
“And commercial real estate, too. You just have to walk through any CBD to realise that there is a lot of office space available at the moment.”