Proper demand has yet to be felt in consumer related sub-sectors in global equities, as US consumers have “pent-up demand” from receiving stimulus, according to Bell Asset Management.
Nicole Mardell, Bell senior global equities analyst, said there was some “really interesting” dynamics at play for consumer discretionary exposures.
“First and foremost, there’s a lot of pent-up demand that’s yet to be realised across a number of sub-sectors,” Mardell said.
“The consumer represents around 75% of the US economy, and that consumer has just been flooded a whole bunch of cash, and they’re still in lockdown.”
Mardell said when the market opened up, they expected earnings estimates to significantly outperform.
“And that’s the interesting point here – earnings estimates for this year are still pricing a scenario where COVID disappears,” Mardell said.
“We say differently, especially when you think about how the consumer has changed their behaviour over the last year.
“They’re spending more time at home – we view our home as a place of work and leisure – spending more time renovating our home or repairing it.”
Mardell said the other interesting dynamic in the sector was that COVID-19 expanded the divide between high- and low-quality companies, specifically when you look at sub-sectors.
“Through COVID [the best-performing businesses have] actually put things in place that’s actually those strengthened those positions,” Mardell said.
“It’s not so much about going ‘we know the brand is going to be strong’ it’s about understanding why that brand is strong and what management is doing behind the scenes to continue to execute.”
According to FE Analytics, the Bell Emerging Companies fund returned 8.21% over the previous year to 28 February, 2021, compared to the global small/mid cap sector within the Australian Core Strategies universe which returned 20.33%.
The Global Equities Wholesale fund returned 2.29%, while the average return in the global equities sector was 10.04%.
Ned Bell, Bell Asset Management chief investment officer, said it was no secret that specific large cap stocks – namely the US tech giants – had led the market high over the last year during the market rebound.
“The magnitude of that differential was so high last year it’s frankly just difficult to see how that can continue,” Bell said.
“The companies are terrific businesses, they’re so over-owned, not only by growth managers but by value managers fearing for their lives.”
Bell had previously said there was potential for a “hockey stick” recovery for earnings for small/mid caps.
“Probably the thing that excites us the most is the earnings trajectory and the earnings leverage we expect to see in the next two years,” Bell said.
Performance of Bell funds v global equities and global small/mid cap sector over the year to 28 February 2021
