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5 must know investment themes for the new financial year

The Chief Investment Officer at Wilson Asset Management, Chris Stott, recently outlined five key themes which he thinks will shape the sharemarket’s performance over the course of financial year (FY) 2015. Those themes were:

  1. Interest rates to remain lower for longer.
  2. Housing market to remain strong.
  3. Earnings per share growth to remain anaemic and below the market’s current expectation for 8% growth.
  4. Interest rates to rise in the USA.
  5. Initial public offers (IPOs) and merger and acquisition (M&A) activity to get even hotter.

A top-down investing approach

Identifying themes which will either positively or negatively change the market is one way to narrow down (or filter) your stock selection process. This is often also referred to as taking a ‘top-down’ approach.

Here are some examples of stocks that I believe are exposed to the above mentioned investment themes and could benefit in FY 2015:

Commonwealth Bank of Australia (ASX: CBA) has a significant share of the mortgage loan market. The low rate environment will continue to encourage borrowers to take out mortgages and to buy property. Comm Bank will also benefit from continued demand for high yielding, fully franked dividends in a low rate environment.

Brickworks Limited (ASX: BKW) may not be the most leveraged play on a strong housing market, however its combination of upside potential coupled with defensive and non-housing aligned value drivers makes this an all-round appealing stock.

Brambles Limited (ASX: BXB) – companies which actually deliver on market expectations and manage to grow their earnings stand to be highly rewarded with a ‘quality premium’ compared with the risk of de-rating for stocks which fail to meet market expectations. Brambles is a quality stock which has a better than average chance of meeting the market’s expectations.

QBE Insurance Group Ltd (ASX: QBE) has struggled on many fronts, however the low interest rate environment has certainly been a hindrance by restricting the earnings generated from its large cash balance. With a significant percentage of the group’s cash held within its North American operations, QBE would be a definite beneficiary of higher U.S. interest rates.

Macquarie Group Ltd (ASX: MQG) – As Australia’s pre-eminent investment bank, Macquarie Group is well placed to win a significant share of IPO and M&A business. A strong pipeline of deals would be a definite plus for the firm.

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Motley Fool contributor Tim McArthur owns shares in QBE Insurance Group Ltd.

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