POWERED BY MOMENTUM MEDIA
Tightening credit determines stock preferences
A reduction in credit growth has influenced the current positioning of Australian equity funds, which includes being underweight bond proxies and higher price-earnings stocks, DNR Capital said.
According to DNR Capital chief investment officer, Jamie Nicol, there could be little doubt that when looking at a period of reduction in credit growth that this would have a headwind effect for consumers.
“It seems most likely that this will have some incremental flow-on effect on the housing sector and consumer behaviour,” he said.
At the same time, the bigger risk would be if the reduction in credit availability snowballed into a fully blown credit crunch.
The Royal Commission turned the spotlight on the banks’ responsible lending obligations, Nicol stressed.
“In this environment our suite of Australian equities portfolios – ‘High Conviction’, ‘Socially Responsible’ and ‘Income’ will be managed in accordance with a number of key considerations,” he said.
“Given the inflation outlook, DNR Capital’s Australian funds are underweight bond proxies and we are reducing exposure to higher price-earnings (PE) ratio stocks. With regard to elevated household debt to GDP we are underweight consumer stocks and banks.
“We are maintaining exposure to companies invested in mining and infrastructure spending, noting corporate debt is low and capex is rising.”
In terms of specific stocks, the firm said it was building positions in names like Woolworths Group and found opportunities in companies like CYBG and companies whose balance sheets and outlooks had improved substantially, like Woodside Petroleum.
Recommended for you
The Australian Retirement Trust is adopting a “healthy level of conservatism” towards the US as the end of the 90-day tariff pause approaches, with “anything possible”.
Uncertainty around tariffs and subdued growth may lead to some short-term constraints in relation to the private credit market, the fund manager has said.
Just three active asset managers are expected to attract net inflows over the coming year, according to Morningstar, with those specialising in fixed income or private markets best positioned to benefit.
Taking a purely passive investment approach is leaving many investors at risk of heightened valuation risks, Allan Gray and Orbis Investments have cautioned.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
92.15 3 y p.a(%)
2
Global X 21Shares Bitcoin ETF
53.24 3 y p.a(%)
3
Global X GlobalX FANG+ ETF
43.15 3 y p.a(%)
4
DomaCom Shoreline North Coogee
36.26 3 y p.a(%)
5
GAM LSA Private Shares AU I
35.87 3 y p.a(%)
