A great transition is underway and it's prompted a leading broker to make a number of changes to its model portfolio.
The transition I am referring to isn't from the Trump to Biden presidency, although that's good news. It's the move towards a COVID‐19 normal world as multiple promising vaccines are in the wings.
This is the key reason why the S&P/ASX 200 Index (Index:^AXJO) is rallying recently. But the types of ASX stocks that could outperform in 2021 might look very different from those leading the charge in 2020.
Changes to model portfolio
This is why Macquarie Group Ltd (ASX: MQG) made changes to the stocks it's holding in its model portfolio. A model portfolio represents a group of stocks that the broker is recommending investors hold to beat the market.
"Stocks may pullback after recent gains, especially given rising cases in the US and Europe, but with multiple effective vaccines, we think investors should be positioning for the end of the pandemic," said the broker.
Prepare for a jump in bond yields
One effect from a COVID-free world is rising bond yields, noted Macquarie. This is the key driver for the broker adding the Suncorp Group Ltd (ASX: SUN) share price, the Computershare Ltd (ASX: CPU) share price and NIB Holdings Limited (ASX: NHF) share price to its model portfolio.
"Effective vaccines reduce the need for more monetary easing," explained Macquarie.
"This allows bond yields to catch up with the cycle. The ISM and copper/gold ratio imply yields should be closer to 2%."
Why bond yields can climb further
While the 10-year US government bond yield has rallied hard recently, history shows it could still spike higher.
The broker pointed out that this has happened in 2013 and 2016 even after the 10-year yield jumped above its 200-day average.
"With US yields just above the 200 day, it is not impossible that US yields spike 50-100bps over the next 6-9 months," said Macquarie.
"We would expect to see Australian and other global yields move with the US."
ASX stocks impacted by rising yields
General insurer Suncorp, share registry services group Computershare and health insurer NIB are among the stocks that will benefit from a spike in bond yields. It's worth noting that the CPU share price is most sensitive of the three to changes in yields.
On the flipside, Macquarie dropped three ASX stocks that will lose out from rising yields. These include the GPT Group (ASX: GPT) share price, the Graincorp Ltd (ASX: GNC) share price and the Evolution Mining Ltd (ASX: EVN) share price.
