Equity&Super Daily Bulletin 21 October 2015

The market still continues to trade on US Fed interest rate policy expectations. We still believe that many hedge funds are still trying to profit from the Fed subsidy of past stimulus. Investors remain loaded in risk assets in the US, incentivized by the need to beat peers and benchmarks, and comforted into complacency by the Fed ‘put’. This is why “value” buying remains an important factor in allocating your capital. The sell-off in the tech sector in the US in the last few nights has highlighted some amazing companies that lack any valuation grounding, at some point all these amazing ideas need to make money.

Taking this back to the Australian market context, the trend right now is to be over paying for companies outside the ASX 50, while companies inside the ASX 50 are being “shorted” by hedge funds as their perceived dominance becomes challenged. We would caution this thinking, and suggest that many of the best long term buys for superannuation investors still remain within this larger index group. Telstra below $5.40 early this week, including CSL and Woolworths remain good examples. If the speculation in today’s papers on Woolworths potentially exiting Masters proves true, then this stock will see a massive rerating as their free cash flow will lift significantly (ex Masters Target $33.00).

Medibank- New Highs $2.55


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