Barclay’s bull or Pearce take? Building your portfolio for the post-COVID economy

Each Friday, we highlight the key trading themes of the week, along with companies and sectors investors should be keeping their eye on.

We're excited to announce our weekly segment published in collaboration with Stockhead.

As part of the weekly recap for Stockhead, our Head of Trading, Trent Primmer, was interviewed to share some trading highlights of the week.

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This week saw another interesting development in the post-COVID recovery, with an update from the US Fed on the outlook for interest rates which leaned on the hawkish side.

Heading into the middle of the year, the focus has shifted to which companies will benefit in the tug-of-war between stronger economic growth and tighter liquidity.

In that context, Trent shares some insights in this week’s discussion on how he’s constructing the BP portfolio to fit the post-COVID economy.


Building your portfolio

In line with last week’s discussion with BPC analyst Joseph Raad, Primmer has added positions in ASX oil stocks as crude prices push above US$70/barrel on a strengthening demand outlook.

 

Trent-Primmer

“A lot of brokers I’ve spoken to over the past two or three weeks are saying oil is eventually going to hit $100 a barrel. So I’ve moved it up to an 8% weighting of the portfolio and I’d be happy to buy oil on any price weakness.” 

    - Trent Primmer, Head of Trading

 

And the firm is using those strong macro fundamentals to build positions in blue-chip ASX oil & gas plays, rather than the speculative end of the market.

Primmer said:

“Lots of people like ‘speccy’ plays in the oil space, but I’d be conscious of where the market’s at right now more broadly in terms of risk sentiment.

Just because demand is going up doesn’t mean prices for those juniors will rise exponentially.”

Instead, Primmer prefers “comfortable exposure” across a diversified group of blue-chip oil & gas names.

Worley Parsons Limited (ASX: WOR)

WorleyParsons-Limited-(WOR)-1

Engineering company Worley Parsons (ASX :WOR) is another way to get exposure to the energy thematic, he said.

 

Trent-Primmer

“They do a lot of engineering work for energy companies and they’re trading off their 12-month highs. I still they that stock looks fairly cheap and you’ll get some decent price moves in Worley if oil keeps tracking higher.”

    - Trent Primmer, Head of Trading

 

Elsewhere, Primmer has positioned the BP portfolio for the next phase of the pandemic recovery, which is likely to be supportive of commodities and cyclical stocks tied to a rising yields outlook.

He trades in and out of gold, which currently comprises around 5-10% of the portfolio.

And along with precious metals, he’s transitioned the portfolio towards the commodity super-cycle encompassing base metals (such as copper) and bulk commodities (such as iron ore).

As a result, commodity exposure now comprises around 40-45% of the BP portfolio. And there’s a healthy allocation to financial stocks as well (around 20-25%).

Primmer said:

“We hold some bank stocks for their exposure to rising interest rates and the yield they offer as the economy recovers. Clients still want some form of steady yield and I think banks are a pretty easy bet in that sense.”

Healthcare also gets a fairly strong allocation, at around 9% of the portfolio.

Primmer said:

“Stocks like Resmed (ASX: RMD) and Ramsay Healthcare (ASX: RHC) — these are companies that will do well in the case of a market slowdown.” 

 

Resmed (ASX:RMD) and Ramsay Healthcare (ASX:RHC)


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ramsay healthcare

Notably, high-growth tech stocks — the 2020 market darling — are out.

Primmer said:

“I trade in and out of tech a bit, but I think there are more opportunities to make money in other sectors given how hot valuations have run there.” 

And lastly, as FY21 draws to a close Primmer is staying agile with a healthy cash weighting.

“We’re holding quite a bit of cash — about a quarter of the fund at the moment because it allows you to take advantage of opportunities and pick up opportunities as they come.

 

Trent-Primmer

“Broadly speaking, I’d be wary about being fully invested when markets are this high. I’m not saying it will come all the way off, but I like being ready with some extra cash in the event of a small contraction or some form of a correction.”

    - Trent Primmer, Head of Trading

 

 

To read the full Stockhead's article, click here.

 

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