Question: Should one sell out of WES in anticipation of Amazon’s arrival, or wait and see?
Answer (by Paul Rickard): I am not selling mine. I prefer to deal in “knowns” rather than “unknowns”, and in relation to Amazon, we still don’t know if, when or how they may enter the market.
The market is clearly pricing in some of the “Amazon risk”. What is hard to tell is how widespread this anxiety is and how much selling has already occurred.
Despite the performance of the consumer staples sector this year (up 10.8% in the March quarter), I don’t think the supermarket wars are over and accordingly, I am underweight the sector. If you are overweight the sector and worried about Amazon, then it might make sense to reduce your exposure by selling your Wesfarmers shares.
Question: I manage a small family SMSF, which has been moving along quite nicely at 9% & 7.8% over the last two years not shooting the lights out but only giving the occasional heart palpitations. No doubt due to some sage advice from your publication and a fairly well balanced portfolio, save for the absence of meaningful positions in energy [apart from a minute interest in WPL] and to lesser extent utilities. Due to hard lessons learned in years gone bye in these sectors, I will never have the intestinal fortitude to have anything more than a modest participation in these sectors. As a result of tidying up of the portfolio in recent times, we have funds awaiting redeployment. I seek your thoughts as to whether we may have missed the boat, or can you suggest a stock that may be suitable for each sector or are we better to perhaps to stick to our knitting and not worry about creating the theoretical perfectly balanced portfolio? I would be very interested in your thoughts.
Answer (by Paul Rickard): I don’t think that there is any need for you to have an exposure to every sector, particularly when the sectors are fairly small. Utilities accounts for only 2.7% of the index (by market weight), while Energy comes in at 4.1%.
Arguably, you can get indirect exposure to these sectors through other sectors. For example, the Utilities sector in Australia is characterised by companies with (often) monopoly style assets, annuity style income streams and leveraged balance sheets. You can find monopoly style assets, with annuity style income streams, that are leveraged by investing in companies such as Sydney Airport (SYD) or Transurban (TCL), both classified as Industrials. While Energy is a little different because the oil price is such a driver, BHP (for example), which is classified as Materials, is a big producer of oil and gas.
If you do want some exposure, I’d suggest Woodside or Oil Search for energy (the latter is more pure play, but also carries PNG sovereign risk and is arguably riskier). In Utilities, AGL has had a terrific run, but is now getting very expensive.
Bottom line: stick to your knitting (unless you’re very bullish on the oil price).
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.