Investors should look to rotate into resources as they are “perfectly positioned” for the current market environment, according to Research Affiliates.
Resources were trading at a 50% discount compared to financials which were trading at a significant premium.
Mike Aked, director of research for Australia at Research Affiliates, said: “Financial companies are priced at a significant premium over international peers. Some of that is justifiable but the premium is way over what you would expect and there isn’t much upside.
“Meanwhile, miners are trading at a 50% discount to international peers and I would beat on seeing higher inflation and better commodity prices more than I would on seeing lower interest rates and this would be much better for resources companies.
“People should keep resources and rotate out of financials which will protect them against rising inflation which is the only place we can go from here.”
He namechecked Rio Tinto and Newcrest Mining as two resources firms which were particularly attractive based on fundamentals such as sales, earnings and dividends.
Meanwhile, he said he expected the value rally to last for at least another 12 months based on historic market trends.
“Since September 2020, cheap, low quality, small companies and emerging markets have done spectacularly well,” he said.
“We believe that will continue, usually the recovery phase lasts for two years so we are about halfway through and resources are perfectly positioned for this.
“There is definitely still room to take part in the value rally, for the next 12 months it will be all about the recovery.”