Encouragingly, recent economic indicators reflect a V-shaped recovery in profits over the next 12 months. Global manufacturing PMIs have exhibited continued strength into December reaching a 36-month high, reflecting a broad-based improvement that is taking place with output and new orders remaining close to the cycle-highs.
In anticipation of a recovery in corporate earnings, the December quarter was notable for investors starting to rotate toward stocks more sensitive to a recovery in the economic cycle, with cyclical/value stocks showings signs of revival. The portfolios are adding to a basket of ‘recovery plays’ including: CSL Limited (CSL), Medibank Private (MPL), Qube (QUB), TPG Telecom (TPG) and Santos (STO).
We have sold the holding in Chorus (CNU) to part-fund the buying of Santos, TPG Telecom and Qube Holdings. Whilst, acknowledging CNU’s virtues of defensiveness and attractive dividend profile, the portfolio tilt towards earnings recovery and growth requires both funding and reduced defensive exposure.