Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Why this ASX manager is pivoting away from the Big Four
Blackmore Capital has fine-tuned its Australian equities income portfolio after the mammoth bull run in CBA’s share price triggered a response from the team.
Co-founder and CIO of Blackmore Capital, Marcus Bogdan, said, “on a 12-month basis CBA has delivered a total return of about 58%, outperforming the S&P/ASX200 by about 35% and its major bank peers by a range of about 3% (NAB) to 13% (Westpac).
CBA’s 24-month performance relative to peers is considerably larger, having outperformed the S&P/ASX200 Banks total return index by some 35%, in line with its outperformance over Suncorp. Thus, the market capitalisation of CBA at $186 billion is now more than that of Westpac and NAB combined.”
In light of this, the portfolio’s exposure to CBA was reduced, locking-in profits. Proceeds were used to add to the existing holding of Suncorp (ASX:SUN) in the income portfolio. This decision was driven by the growth of the CBA holding towards the portfolio position limit constraint and its overvaluation when compared to its rival banks.
Bogdan explains that “CBA’s lead over its ‘four pillar’ peers since the Banking Royal Commission has been reflected in better growth in aggregate Ioans, owner/occupier housing loans and household deposits. CBA now trades at a forward price/earnings (P/E) ratio of 19.9 times versus the other major banks’ range of 13.0-14.8 and its forecast dividend yield is 3.8% versus 4.7-5.2%.”
Suncorp (ASX:SUN) on the other hand, is only just trading at its pre-Covid levels, whereas CBA has almost doubled. The insurer has performed ahead of Blackmore’s expectations since being added to the portfolio in March this year with a ~35% total return.
Bogdan says “The investment thesis remains intact and despite the higher stock price its forecast FY22 yield at 5.6% is higher than any major bank. We see premium rate increases offsetting claims inflation and natural perils, with potential margin improvement from increased investment returns amid increasing interest rates. In this respect, it acts as an interest rate hedge relative to other income generating investments which can be negatively impacted by rising interest rates.”
Top brokers around the country are feeling the same way with CBA. According to a note from Credit Suisse, the broker downgraded CBA to an underperform rating with a price target of $95.00 due to its lofty valuation. Based on its calculations, CBA’s share price was trading at 21x earnings at the time of the downgrade. That multiple is a little rich when comparing to the remaining three banks.
