"Same old, same old" vs. "In with the new…."
Over the past 12 months the top 20 ASX stocks - which make up 55% of the market cap of the ASX200 - have risen a paltry 3.45%. The ASX200 index itself has not surprisingly fared little better, rising 4.52%. Dominated as it is by the big four banks and BHP, and now to a lesser degree by Telstra, (the market cap of which has fallen by almost one third over the past 12 months), it is no wonder the Australian market is locked into a tight trading range.
Compared with the S&P500, which has risen 19% over the past 12 months, the local market has been a great disappointment. One of the great differences is that the US market is now dominated by new economy growth stocks, or the so called FANG's, namely Facebook, Apple, Netflix and Google, which have risen 33%, 33%, 97% and 24% respectively over the past year. Not only are these new economy companies, they're new businesses and, with the possible exception of Apple, had hardly been heard of by the average investor 10, and certainly not 20 years ago.
Australia's banks, plus Telstra, are driven and supported by dividend yield - or not in the case of Telstra - which results in the ASX200 having a total return over 12 months more than double that of its simple return based on price. Meanwhile the FANG's reinvest their profits in growing their global and industry domination.
The bottom line would seem to be that any upward driving force for the local market as a whole is limited accordingly. The banks are not only under pressure from Canberra, but their upside would seem to be constrained by a housing market that has been driven by easy credit and offshore property buying. Judging from today's Financial Stability Review published today by the RBA, the outlook for the banks at best is as good as it gets, and faces significant risks, even if the RBA did note the sector was well capitalised. And if the Treasurer is overseas spruiking that our banks are as safe as houses, you can bet your bottom dollar it is because he's not preaching to the converted.
So where do investors look for attractive returns, assuming index managers will be locked into market returns albeit with low fees - although as Hamish Douglass from Magellan points out in today's AFR, there are many active managers "dressed up in drag" charging plenty more while still hugging the index.
The answer surely lies in active management, be it a concentrated long only portfolio, probably outside the ASX100, or market neutral or long/short. Alternatively funds investing offshore, be it in Asia or Globally. A quick scan of AFM's database of top performing funds demonstrates the benefit of either approach.
