A report by SSgA pointed out that these six stocks (the ‘big four banks’, BHP and Telstra) have experienced almost 50 per cent price/earnings expansion in two years and marginal earnings growth.
The report also noted these six companies are trading at a 20 per cent premium to their five-year average PE.
SSgA believes companies should therefore be selected not only on their expected returns, but also on their risk-adjusted returns.
SSgA held less than 10 per cent in these six companies in its Australian Managed Volatility Alpha Trust Fund (AMVA) at the end of November 2013.
Its positioning in banks has been reduced from around 12 per cent down to four per cent, and it expects to increase its exposure to higher quality assets as they become cheaper.
SSgA stated the AMVA fund “prefers quality companies with growth potential, strong cash flows, sustainable dividends at attractive valuations.”
SSgA said the benchmark does not drive the construction of its portfolio.
The report said financials was one of the strongest performing sectors in the Australian market in the calendar year leading to November 2013, with a 32 per cent return.
This theme continued into November where the sector outperformed by another 1.6 per cent.
AMVA held 26 per cent in financials on average during this month, and the sector contributed to a third of the fund’s performance.
