Another month flies past and we barely have time to think about what’s ahead. February was obviously dominated by Trump and Reporting season. As much as company reporting takes focus away from global events no one could look away as the lead up to and delivery of Trump’s address to Congress. From the start of February to the end, the chances of the Fed raising rates has moved from “maybe” to “definitely” which makes our US banks trade all the more valuable. As at the start of March the chance of the Fed rate rise next week is 80%. Already at the time of writing it is much higher. See chart below, courtesy Bloomberg.
There used to be a time when talk of the potential for the Fed to raise rates potentially four times in a year would have caused a real disturbance in equities. However we’re now in a beautiful bubble where “good news is good news” and the US market continued on to records with record low volatility. The follow-on from rising interest rates that companies will have to endure is in the category of “somebody else’s problem”
Locally, we continue to battle on to new recent highs and with reporting season making for some volatile moves we continue to stress caution with regards to careless stock picking. The VFS Investment Committee have felt the shift in markets away from the high P/E all-stars. We continue to shape our strategies and selections accordingly.
Growth Portfolio
The growth portfolio continues to outperform. What we are looking for during the course of this year is a turnaround in some of the weaker stocks of 2016 and we believe that TPG Telecom (TPM.ASX) and Healthscope (HSO.ASX) offer long term value at these levels.
Most of this rally has been macro event driven and the Top 20 have been the beneficiaries. We continue to use derivatives to gain exposure to these stocks.
We have just witnessed another volatile reporting season and once again we saw stocks move heavily after the results dropped. HSO reported and initially rallied over 5% on the back of this result. VFS are optimistic about the medium term outlook for this stock.
In our MDA portfolio we have locked in half of our profits on our Short position in Dominos Pizza (DMP.ASX). We continue to hold the other half of the position as the stock has a number of headwinds that will potentially take the stock lower. Link to the SMH here
We have seen strong results from Ramelius resources (RMS.ASX) and we have added a speculative position on a UK listed company Solgold (SOLG.LSE) – you heard about Solgold here first and if you would like to discuss this in more detail call the desk.
All the best,
The VFS Group Investment Committee
Disclaimer:
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