The shape of things to come
With the Lehman Brothers collapse just over a year ago now, the All Ordinaries Index has risen over 50% since its low on 6 March 2009, the recovery has been at twice the historical average in half the time.
During this time there’s been talk of a V-shaped recovery, a W-shaped recovery, as well as L-shapes and now the inverted square root (v) but the only certainty is uncertainty itself. While we can predict with some confidence the likelihood of ‘speed-bumps’ along the path to recovery, there is no overriding signal of any particular shape.
Our economy – the road to recovery
In our view we see Australia as continuing along its Asian-linked growth path but external liquidity and finance, from places like the US and Europe, will be more constrained. Balance sheets will be tighter, corporate activity will be more conservative and value will be the ‘watch-word’ for investors.
Some of Australia’s economic risks arise from Australia’s economic strength. Being the first major economy to raise interest rates, Australia demonstrated its enviable position, yet higher interest rates also present financial challenges for borrowers, both personal and corporate. Our relatively large Government stimulus package was possible after years of careful fiscal management, but the risks arising from this benefit include the creation of possible bubbles in the housing market and the promotion of further personal indebtedness. There are no red alerts just yet – unlike in some markets, including China – but investors and policymakers remain cautious.
The Lincoln Australian Share Fund and Financial Health
We believe financial health to be paramount when it comes to stock selection. Stocks within the Lincoln Australian Share Fund, all with sound Financial Health, are expected to benefit from the macroeconomic Gross Domestic Product (GDP) recovery, a falling unemployment rate, improving household disposable income and strengthening market sentiment and, on the flip side, they will be better placed to withstand headwinds of regulatory uncertainty arising from developments in climate change, workplace relations and financial services legislation as well as higher interest rates, currency volatility and increased costs of capital.
What the sectors did
A number of sectors did well this year including the banking sector, with the big four banks increasing by 75.15%* since March. We currently continue to hold Westpac Banking Corporation (WBC) and ANZ Banking Group Ltd (ANZ) for further gains.
Defensive sectors like telecommunications have underperformed, but Telstra Corporation Limited (TLS), currently a portfolio inclusion, continues to exhibit good value. Another defensive sector, consumer staples, has also underperformed, but as the market looks beyond cyclical recovery in 2009 towards structural growth and earnings in 2010, companies like Woolworths Limited (WOW) and Coca Cola Amatil Limited (CCL) are expected to perform well.
Commodity price volatility has been another theme over the past year and is a theme that will likely continue. BHP Billiton Limited (BHP) has given us exposure to all bulk and base commodities, while Lihir Gold Limited (LGL) and Kingsgate Consolidated Limited (KCN) have provided additional upside via the gold price. Gold has increased to record levels above $US1,100 an ounce. We see further upside on the horizon before any pullback and currently continue to hold Lihir Gold Limited (LGL).
Shape your future
Now is the time to stay vigilant and as history shows, having a long term investment strategy in high quality, financially healthy stocks can be rewarding.
The market has always been unpredictable in the short term but history tells us that it will surpass previous highs over the long term. Getting caught up in the hype of cyclical events – whether they’re going up or down – is fine for the short term speculators but it’s no way to invest for the long term. Lincoln’s disciplined approach remains unchanged and we have every faith in the companies that we select, which are being actively managed for all market conditions.
Like to know more?
To find out more about the Lincoln Australian Share Fund and investment approach, please call our Managed Investments Team on 1300 676 332.
*Calculation based on the return of the big four banks since 6 March 2009, when the S&P/ASX 200 Index hit a six year low of 3145.50.
Important information. This information is issued by Lincoln Indicators Pty Ltd.
Investment Manager: Lincoln Indicators Pty Ltd (Lincoln) ACN 006 715 573, AFSL 237740. Responsible Entity of the Fund: Equity Trustees Limited ABN 46 004 031 298, AFSL 240975. All figures, information and illustrations are as at 10 December 2009 unless stated otherwise. Portfolio holdings and sector allocations are subject to change without notice. This communication contains general information only. It has been prepared without taking into account the objectives, financial situation or needs of any individual investor. As a result, you should consider its appropriateness in regard to your particular objectives, financial situation and needs. You should also consider obtaining your own independent advice before making any financial decisions. It should be read in conjunction with the Product Disclosure Statement (PDS) of the Lincoln Australian Share Fund; which can be obtained by contacting Lincoln on 1300 676 333, or via our website www.lincolnindicators.com.au. You should read and consider the PDS before making any decision about whether to acquire or continue to hold the product. Applications to acquire units can only be made on an Application Form attached to a current PDS. Lincoln, its employees and/or associates may hold interests in companies listed in this communication. This position may change at any time without notice.
Investments go up and down. Past performance is not a reliable indicator of future performance. Lincoln, as Investment Manager, will be remunerated based on funds invested. You should read and consider our Financial Services Guide, available by contacting Lincoln on 1300 676 333 or via our website www.lincolnindicators.com.au, which sets out key information about the services we provide. Neither Lincoln, Equity Trustees Limited, or their directors, employees or agents provide any guarantee, representation or warranty as to the reliability, accuracy or completeness of the information in this document; and do not accept any responsibility or liability arising in any way (including by reason of negligence) for errors in, or omissions from, this document. This disclaimer does not purport to exclude any warranties implied by law which may not be lawfully excluded. Neither Lincoln, Equity Trustees Limited, or their directors, employees or agents guarantees the performance of, or the repayment of capital or income invested in the Fund.
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