Lower prices and the anticipation of an imminent rebound in the local market have prompted investors to add more risk to their portfolios, a trend State Street Global Advisers (SSgA) expects will continue over the next three to six months.
SSgA head of Australian active equities Olivia Engel said the company favoured retaining exposure to cheap stocks while also increasing exposure to higher risk stocks.
“What we’re seeing at the moment is fairly similar to the beginning of the year where we do have a preference for value and things in the market that are cheap. We are also seeing a preference for the riskier end of the market,” Engel told InvestorDaily.
SSgA noted prices in aggregate markets had fallen from the beginning of the year, commodity prices were weak, there was strong fund flow into Asia, interest rates were falling and the yield curve was still flat, but market volatility had greatly reduced from the start of the year.
“With that environment [there is] a strong preference for value and risk,” Engel said.
“The preference from risk comes out of the fact the market is cheap and a rebound is imminent. We are expecting a short-term rebound in the next three to six months.”
SSgA’s Australian Dynamic Equity portfolio has been positioned since the beginning of 2012 for a rebound in attractively-valued companies with higher levels of risk.
The sectors most attractive to SSgA were mining services and consumer discretionary stocks, Engel said.
“This is what we think will do well over the next three to six months and this is how we’re positioning the portfolio,” she said.
“These parts of the market are quite unloved and so as long as these firms don’t go bankrupt, this is where you’d see the biggest payoff from a rebound in these areas.”
