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2018 presented an interesting year for investors – markets around the world reached new peaks after years of strong performance and low volatility, including a post GFC high in Australia, but retreated sharply and generally ended the year in the red. So how did nabtrade investors respond to the changing dynamic?
Generally speaking, nabtrade investors hold a portfolio that is overweight large cap stocks, and higher yielding than the overall ASX200. Their trading, however, reflects the wisdom of famed investors such as Benjamin Graham and Warren Buffett – they prefer to take profits when stocks are running, and buy when prices are under pressure. Total trade volumes grew by 2%, total accounts grew by 13%, but nabtrade investors were net sellers for the calendar year 2018, and cash holdings reached record highs, reflecting both caution and the desire to keep cash available for opportunities that may arise in a world of renewed volatility.
One of the more significant trends observed over 2018 was a general rotation out of financials, telecommunications and consumer discretionary, and into cash, energy and healthcare. This was particularly true of older investors and SMSF trustees, who have been heavily overweight financials and Telstra, valuing the higher yield on these stocks. As banks and wealth managers came under pressure, investors were tempted by lower share prices, pushing nab and CBA into the top 2 buy positions for the year, and AMP to number 10, but despite the opportunistic buying, investors reduced their exposure overall.
Telecommunications exposure was also reduced throughout the year. Investors bought Telstra on weakness but sold once the price recovered above $3, reflecting a desire for a short term profit opportunity rather than long term holdings. The reduction in dividend was clearly one driver of investors’ decision to reduce their positions but interest remains; a nabtrade video entitled ‘When will Telstra become a buy?’ was our most popular video of the year, with nearly double the views of any other topic.
The shift to healthcare shows continued enthusiasm for CSL’s spectacular rise; CSL holders tend to be high conviction on the stock, with an average holding of $120,000, and trade it often, but in relatively small volumes. They consistently purchase on price weakness; when the price dropped 4% during reporting season, CSL was the most traded stock by volume with 85% buys. CSL is now the third largest stock on the ASX200, but makes only number 7 in nabtrade’s top 10. It consistently appears as a buy, with the price now down to $200 from a peak of over $230.
Companies outside the top 10 also attract contrarian investors, particularly during reporting season. Weakness in regional banks such as Bendigo and Adelaide Bank resulted in heavy buying, as did Resmed, a 93% buy on strong volume on the day its results disappointed the market.
Investors who are newer to the market have flocked to diversified investments such as exchange traded funds (ETFs). These are generally buy and hold strategies, and are popular with both Gen Y and Gen Z, making the top 10 buys for both groups. Interestingly, by far the most popular ETFs track the ASX200 index, not those providing exposure to international markets.
Many investors are, however, turning to international markets for direct investments. nabtrade gives access to the US, UK, Germany and Hong Kong, of which the US is by far the preferred destination (over 90%). Given the strong growth of the S&P500 over the last decade (increasing four-fold from the depths of the GFC to its peak in mid-late 2018), investors have been unable to exploit price weakness and instead have chosen to ride the momentum in this market. Technology stocks have dominated investor preferences in the US, including Apple, Amazon, Facebook and Telsa. The only non-technology stock in the top 10 international buys was Warren Buffett’s publicly listed investment company, Berkshire Hathaway.
In addition to their enthusiasm for US-based tech stocks, investors have been keen to get exposure to Asian tech giants, whose growth in many cases has eclipsed that of their US counterparts. Tencent, Alibaba and JD.com all made the top 10 international buys, with Baidu close behind. Asian share markets suffered significant falls in 2018, with the Shanghai Composite falling over 30% from its peak, giving investors the opportunity to purchase some of these stocks well below their previous highs.
Despite (or perhaps because of) the weak close to 2018, investors returned to markets with renewed enthusiasm in early 2019, with the ASX200 up over 10% year to date and global markets well above their December lows. With positive news stories such as the fabled ‘Goldilocks economy’ and synchronised global growth consigned to the early part of 2018, the new year poses both opportunities and threats to investors with their eyes open. Domestic economists remain concerned about subdued wage growth and declining property prices weighing on consumers and reducing domestic demand, while market analysts are keeping a close eye on slowing growth in China and the outcome of continued trade tensions between the US and China (Australia’s largest trading partner). Whatever the outcome of these challenges, investors can be assured that markets will react, presenting opportunities to buy at depressed prices and take profits for the diligent and disciplined.