The Australian market rallied as much as +7.1% during the month but fell -4.8% in the last two weeks of October amidst rising global COVID-19 cases and in the lead up to the US election. Technology, Consumer Discretionary and Healthcare stocks outperformed as the market fell, reflecting the continuing stay-at-home trends year to date, while Energy/Materials, Telecommunications and Industrials underperformed.
But despite increased COVID-19 cases globally and the potential for further lockdowns overseas we are seeing early signs of returning industrial production activity fuelling base metal commodity and steel demand. This is being driven by growth in e-commerce logistics, building and home improvement activity, continuing demand from China, detached housing volumes and the revival of volumes to key industries such as US automotives.
While our view is that the market has, through2020, over-capitalised retail and technology company earnings and significantly over-valued their long term opportunity, the return of traditional industrial demand is now starting to drive an earnings-led recovery for other companies. The focus on the current period of phenomenal (revenue) growth for retail and tech in particular during COVID-19 has seen the valuations blow out to unprecedented levels but this also leaves them susceptible to a pull-back should earnings growth become more widespread across other sectors.
In Ethical Partners’ new “In the Studio” series we speak with Anthony Mellowes, CEO of SCP, about its focus on sustainability as well as strong recent sales performance and rent collection. https://www.ethicalpartners.com.au/our-views
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During April 2021 the Fund returned 3.63% versus the S&P/ASX 300 Accumulation Index of 3.70%, underperforming the market by 0.07%. Positions in Materials and Financials contributed to relative performance while positions in Telecommunications and Industrials detracted from relative performance.