Tightening credit determines stock preferences
Reduction in credit growth has influenced the current positioning of the 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 and 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 banking and financial services 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 (ASX: WOW), and found opportunities in companies like CYBG (ASX: CYB) and companies whose balance sheets and outlooks improved substantially, like Woodside Petroleum (ASX:WPL).
AUTHOR
Oksana Patron
Recommended for you
Some 42 per cent of CEOs say they are actively reinventing their business to stay relevant in the next decade, with consumer services the most common choice for asset and wealth managers.
Former Ophir Asset Management chief executive, George Chirakis, has joined private equity manager Scarcity Partners, while the asset manager has appointed a replacement from Macquarie.
Australian Unity has appointed a fund manager for its Healthcare Property Trust, joining from Centuria Healthcare, as it restructures the product with a series of senior appointments.
Financial advisers nervous about the liquidity of private markets funds for their retail clients are the target of fund managers launching semi-liquid products which offer greater flexibility and redemptions.
