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2014 shaping as a stockpickers market
ST Wong, 31 Jan 2014
Australian equities are set to favour stockpickers in 2014 following two years dominated by large cap stocks.
The macro themes that have driven the ASX for the last two years have played out, and we are now moving back to companies that are poised to do well regardless of the market.
It is no longer a matter of “a rising tide lifts all boats”, as was the case in 2013. The hunt for yield, which saw so many pile into the big banks and other large caps, will not be as relevant this year.
So it comes back to being a stockpicker’s market, the ability to find value across the ASX.
This should see more opportunities in mid-cap stocks, but the challenge is finding companies that demonstrate operational excellence. Operational excellence will be a driving theme, finding companies with a sustainable model that can improve margins and efficiency.
It becomes less about making a bet on what the market does, and more about looking for companies that are not exposed to the market, that perform in any environment.
These conditions best suit Prime Value’s investment style. We are optimistic on a positive year from the ASX, though it is unlikely to deliver the high returns enjoyed by investors in 2013. With the yield play easing off it’s hard to see the ASX bringing in 20 per cent-plus again this year.
Strong market conditions helped our newest fund post strong figures for its first calendar year, though it also outperformed the market. The Prime Value Opportunities Fund, which has the ability to convert all holdings to cash, delivered 29.7 per cent for the year to 31 December 2013.
As a concentrated fund, the Opportunities Fund is not obliged to pad out the portfolio with underperformers, and is well-placed to capitalise on the current investment environment.