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How premium investors are playing this market

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One of the most frequently asked question of any broker is ‘what is the ‘smart money’ buying?’ By smart money, most people mean wealthy or very active traders, whose research and experience can pay dividends in volatile markets. Like most nabtrade investors, this group has enjoyed opportunities to buy stocks they like at lower prices over the last three to four months, however they are somewhat mistrustful of the recent rally. The proportion of overall trading by premium investors over the last two months has fallen relative to the wider investor base. Cash balances remain high, and premium investors are preferring to deploy their capital in share purchase plans and corporate actions, which reward existing shareholders. Many learned from the GFC that the best of such raisings may offer steep discounts that close quickly, delivering a quick and relatively low risk profit.

 

While premium investors continue to take opportunities where they can, the last month has tempered the enthusiasms of those who bought heavily during March and April. Afterpay (APT) fell out of favour as investors digested the implications of Tencent’s 10% stake purchase, rescuing the company from concerns about the creditworthiness of its Millennial customer base in a crisis; its share price whipsawed from lows of $8 to over $65 at the time of writing. APT remains a popular holding and some premium clients have been tempted back in the last two weeks, taking profits or increasing exposure in roughly equal numbers. Other buy now, pay later stocks have continued to attract attention, with Splitit (SPT) attracting a large number of small buys (slightly outweighing larger sell trades), Zip Co (Z1P) (a buy in both value and number of trades) and Open Pay (OPY), which has fallen slightly in popularity but has been bought more often than sold.

 

Fortescue Metals (FMG) remains a much more popular stock with premium investors than the wider investor base (no.15 for all investors, last week no.4 for premium), with an average trade size several times larger than other popular holdings such as the big four banks. After heavy buying in previous weeks, FMG has shifted to a sell, indicating a lower level of conviction than CSL, which is only held by 10% of all investors, but has traditionally been a very high conviction stock among those who hold it. Over the last month, CSL has swung from a buy to a sell among premium investors despite relatively small moves in price, indicating a slight shift in sentiment. Macquarie (MQG) is also very high conviction, with the largest average trade size of any stock last week, a slight shift to the buys after much selling in the previous week.

 

Financials are as popular with premium investors as they are with the wider base, with all of the majors usually making the top 10 most traded weekly stocks. Large sells in banks have been offset by a larger number of small buys in recent weeks, and Challenger has joined the big four as a strong buy after a price fall on the back of its recent institutional capital raising.

 

Travel companies, buffeted in the real world by lockdowns and border closures, have experienced significant volatility; premium investors have been attracted to these companies, as has the wider investor base. Flight Centre (FLT), Webjet (WEB) and less recently Qantas (QAN) have been bought on weakness; some larger investors have taken profits while smaller buys creep back in.

 

Finally, Mesoblast has re-entered the charts as a popular buy as it repositions itself, with its potential Covid19 treatment in phase 2/3 trials. Many investors had lost faith in MSB over recent years but as the race to find effective treatments for Covid19 heats up, many are keen to participate.

Gemma Dale is Director of SMSF and Investor Behaviour at nabtrade. This information has been provided by WealthHub Securities Ltd ABN 83 089 718 249 AFSL No. 230704 (WealthHub Securities), a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances. All prices and analysis as at 2 July 2020.