Stephanie Aikins* says that one Australian portfolio manager is warning investors to be wary of the blue-chip bubble and to turn instead to the healthcare tech sector.
As we see volatility across the Australian markets of late, investors will be looking for places that offer security while allowing for growth.
Jun Bei Liu, Portfolio Manager at Tribeca Investment Partners, explains why she finds healthcare growth stocks particularly interesting, and why she recommends avoiding the safe haven of Australia’s major sector blue-chip stocks.
The appeal of technology healthcare stocks
Ms Liu said uncertainty among investors is predominantly impacting the once extremely popular high-growth sectors the worst.
“Essentially, investors are very concerned of where the market might go to, given the volatility of what we have seen,” she said.
“Right now, we don’t have much positive news on the horizon for investors to really feel confident to step into the market to buy, and this is the same across equities and other asset classes as well.”
“A lack of confidence is essentially what we’re seeing.”
“Over the last few years, we’ve seen a lot of money flowing into those high growth sectors, such as technology and the like, and it has been these growth sectors that were most heavily hit.”
“It is important at this time to be looking for companies that have long-term growth drivers and very strong business models, rather than banking on companies that will have a good earning for a year and then, potentially, will taper off.”
“As well as this, be wary of companies that are very exposed to trade, which will have a much higher risk associated with investment.”
She said despite this sentiment, there are still areas of opportunity among growth stocks, namely the healthcare technology and biotechnology sectors are of particular interest.
“I would stick with companies that don’t really need global growth to pick up,” Liu said.
“Generally, companies like technology healthcare are a good place to be.”
“Especially as they’re now at very attractive entry points.”
“Some of these quality technology healthcare companies are looking far more interesting now at the current level, with their earnings still doing quite well despite them being at this cheaper price point.”
“People should pay a lot more attention to some of the quality medical or biotechnology growth companies, those that are best in their fields are seeing share prices come off quite drastically in the last few months.”
“These are the companies that people are looking at building positions in.”
However, Ms Liu acknowledged that investors need to be prepared to invest for the long term when incorporating such growth stocks into their portfolios.
“The world is no certain place,” she said.
“We’ve got the trade war, Brexit, we’ve got Italy issues, we’ve got a US slowdown, so the confidence level is low.”
“People should be picking quality names as something to put their money in for the next 10 years,” Liu said.
Beware of the ‘safety’ of blue-chip stocks
Although Ms Liu acknowledged the appeal for Australian investors of turning to the banks in times of volatility, she said they must be aware of the inherent risks associated with the sector.
“There is a shift into blue chip as people are becoming more cautious, but you have to be very careful where you’re putting your money,” she said.
“Most people have their investments across banks.”
“Now, banks are stable in the short term as they’re offering dividend yield and the impact of the Royal Commission is yet to come through, but it is a sector that is overallocated and it has a risk if our economy does slow down drastically.”
“Banks are very much leveraged to that front.”
Ms Liu recommended reducing investment in the sector, as the next year’s events shroud the banks in uncertainty.
“I would actually reduce holdings in banks,” she said.
“It looks defensive in the short term, but next year the real impact of the Royal Commission will come through, earnings are not going to grow, margins will come off, we’ll see increased costs, and our economy direction will be vital for those companies because they’re so leveraged.”
Ms Liu warned investors about heavily focusing on the mining sector, also, as the impact of the US/China trade war cannot be predicted at this stage.
“Your other standard blue-chip stock is on the mining side,” she said.
“I’d be cautious here, also, because that will be impacted by the likes of the trade war and where China might go.”
“The big miners actually held up quite well during this volatility, but I would be a little bit careful in terms of allocating into those spaces because they will be the more volatile if there was a negative, or indeed no, outcome from this trade war.”
* Stephanie Aikins is a journalist at Momentum Media.
This article first appeared at www.nestegg.com.au.
