Sigma Quarterly Strategy Outlook

Sigma Quarterly Strategy Outlook.

December Quarter 2017

Key conclusions regarding Sigma’s Australian Equity Market outlook are as follows:-

  1. Australian Equities continue to be supported by stronger growth and easy monetary policy.
  2. Cyclical exposures are outperforming.
  3. Index returns have stagnated due to weaker earnings delivery and high bond sensitivity in the market cap.
  4. Valuation gap between undervalued cyclicals and overvalued defensives remains significant.
  5. We expect sustained transition to rewarding economic sensitivity rather than bond sensitivity.
  6. Ex-20 group retains widespread overvaluation, material bond exposure and risks to earnings delivery.
  7. Top 20 has valuation support due to cheaper miners and banks

The investment implications for Sigma’s broad cap Select strategy are as follows:-

  1.  Select remains strongly positioned in attractive economically sensitive stocks with reasonable starting valuations.
  2.  High conviction domestic and financial cyclical positions account for 20% of the Select portfolio.
  3.  Overweight to high quality, low risk miners BHP & RIO. Resources account for 18% of the portfolio.
  4.  Banks account for 28% of the portfolio with an overweight to regionals, and underweight to majors.
  5.  Small Caps overweight accounting for 14% of the portfolio.
  6.  Cash held at 14% of the portfolio, preferred to overvalued defensive equities.

Select's portfolio retains attractive 25% valuation upside and is around 30% cheaper than the ASX300 benchmark.
Our positioning takes advantage of improving economic growth while remaining defensive given widespread equity overvaluation. 

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