Where to invest if you’re a bull or a bear

In Livewire's Bull versus Bear series, our experts outlined their case for where they feel the market is heading: is it going to stay strong, or collapse in a heap? In Why You Should Fear the Big Bad Bear, the general consensus was that too many challenges lay ahead for the market to keep rising, despite the flood of liquidity provided by the central banks.

Our bulls disagreed, saying in A retest of the March lows? The bears are kidding themselves that the huge amounts of cash sitting on the sidelines will support its strength as investors continue to buy back in. They also felt optimistic that a vaccine will be provided sooner than we think and this will add further strength to local and global markets.

With this in mind, we asked our seven bulls and bears where they would invest $10,000 in the current environment. We had a mixed bag of responses as you can see. Enjoyed hearing from our seven contributors? Click on any of their names below and hit FOLLOW to receive content and investing ideas from that person in future.

IDEAS FROM THE BULLS

• Emanuel Datt, Datt Capital - 2 small caps with growth catalysts, and cash for optionality

SelfWealth (ASX:SWF) - Equity market trade volumes are empirically correlated with market volatility. Our consensus is that elevated (or normalised) market volatility will remain with us for at least the short term, thus we expect equity market trade volumes to remain strong.

We believe SelfWealth is well-positioned to capture an outsized proportion of trader churn and grow its market share substantially, in line with its recent experience. We expect that the company will continue experiencing strong organic growth from its current core operations, in addition to future revenue streams from the addition of ancillary services to its platform.

Adriatic Metals (ASX:ADT) - Adriatic Metals holds a suite of world-class polymetallic deposits in the Balkans. A range of value-accretive catalysts will be occurring over the next six months including the delivery of pre-feasibility and definitive feasibility studies, the issuance of mining permits and the results of exploration from its suite of growth assets, all with excellent historical drill results.

We believe Adriatic is materially undervalued on a peer-comparison basis and accordingly will be vulnerable to potential corporate M&A activity as the catalysts mentioned are realised. The world-class economics of the Vares project is simply too compelling to ignore in a low-return environment.

Cash – We anticipate that the markets over the short term will continue to be choppy and volatile. Investors, in our opinion, undervalue the optionality of holding cash to take advantage of opportunities when they are favourably priced. By maintaining appropriate levels of cash and actively allocating capital when circumstances are favourable, investors can materially improve their returns while reducing their risk and market exposure.

• Jun Bei Liu, Tribeca Investment Partners - 3 stock ideas for a "V" shaped recovery

Sydney Airport (ASX:SYD) - Sydney Airport is a unique infrastructure asset. However, the current COVID-related shutdown in travel has caused a significant short-term earnings impact, which has been reflected in its weak share price. Fundamentally, we believe travel will return in 6-12 months’ time, and Sydney Airport is well-positioned to exhibit a strong recovery. We expect the company to raise funds due to the short-term earnings deficit, but any such raising will be strongly supported by investors and should see the share price moving definitively higher subsequently. There is every likelihood that Sydney Airport will come through the end of this period as a much stronger business.

Scentre Group (ASX:SCG) - Scentre Group owns all Westfield shopping centres in Australia and is trading at a 50% discount to NTA. While the COVID shutdown has accelerated consumers’ shift to online shopping, we believe premium assets such as Westfield malls, situated in prime locations, will continue to attract significant interest from retailers and other asset owners.

At today's price, if you buy Scentre Group, you're almost buying it on land value. The company is just too cheap at this point. 

Once foot traffic to retail stores returns, post the lifting of lockdown restrictions, the share price will move significantly higher.

Ramsay Health care (ASX:RHC) - This is a simple one. It was $80 before the Australia-wide lockdown took place and the government imposed restrictions on elective surgeries to reserve capacity for COVID. The share price has since collapsed as short-term earnings have been heavily impacted. While the second lockdown in Victoria presents a near-term headwind, elsewhere, elective surgery restrictions have been relaxed and there has been a strong return of surgical volumes.

This gives us confidence that the large backlog of deferred elective procedures, across both private and public, will continue to support volumes for the next 18-24 months. This effectively means that hospitals will be running at high capacity utilisation for a long time. The operating leverage of hospital assets therefore means we will see a true V-shaped earnings recovery as volumes come through. Further, Ramsay has also raised capital to deploy, which could see it taking advantage of current disruption and buying up other similar assets around the world at distressed prices. It also enables Ramsay to continue investing in brownfield expansion domestically to bolster its already strong competitive position.

• Shane Oliver, AMP Capital - Focus on growth, stay diversified

I would allocate $10,000 to a well-diversified mix of global and Australian shares as shares are likely to rise over the next six to 12 months for the reasons I presented in A retest of the March lows? The bears are kidding themselves. This would involve a slight skew towards Australian shares as Australia is likely to come through this relatively well having managed coronavirus better than many developed countries, and having devised a better stimulus plan. It is also likely to benefit from the earlier recovery in China.

These factors are likely to show up in relatively stronger returns from Australian shares compared to global shares. Within a global allocation, I would include a decent exposure to Asian shares. Asian countries have also done a relatively good job in containing coronavirus, they trade on relatively attractive valuations and stand to benefit from a pick-up in global economic activity.

Ideas from the bears

Our bears believe the market won’t maintain its strength so were asked if risk assets weren’t going to be an option, what did they consider as an alternative.

Jerome Lander, Lucerne - Consider a multi-asset, multi-strategy approach

The alternative is ensuring genuine diversification by avoiding mainstream dogma and investment products. Given central bank action in markets has boosted all asset prices and made cash unappealing, this means active management is now absolutely necessary to provide an alternative return stream. We have three comments with regard to how to invest at this time.

1. A good multi-strategy approach - Combining different underlying investment strategies can achieve this diversification, whereas passive investment can’t. Of course, this needs to be skillfully implemented to work well. Most people can’t pick or access good investment managers, or know when to hold them and when to fold them. This approach requires educated and professional management to achieve good results. Also, most people – including most investors – don’t have the discipline to avoid overpriced assets and manage the downside risk, ahead of speculating on further gains (this is really important for long-term compounding). It is important to partner with the right advisers and investment firms to ensure the appropriate balance.
2. Overweighting in cash and bonds is problematic in the long term - This is likely to simply guarantee low real returns and isn’t necessary to manage risk if you are investing in a multi-strategy manner which diversifies skillfully.
3. Be wary of very large investment portfolios, such as those run by large institutions and superannuation funds - These are generally inflexible, bureaucratic and unable to access many of the most attractive strategies available in markets at the current time, which are generally highly capacity limited. If you’re a small investor or a financial adviser, why do you want to give away your greatest strength – your small size? Why not instead invest with someone who will use your size to your advantage, and who will do the hard work of selecting your assets carefully based on real research and your objectives, rather than simply copying what everyone else is doing and hoping for the best.

Kate Samranvedhya, Jamieson Coote Bonds - Defend and protect with quality bonds

We’ve always advocated for a diversified portfolio of equity and fixed income and for segregation of credit vs liquid high-grade bonds within the fixed income space. The proportion of equity, credit, liquid high-grade bonds, and cash/cash-like allocations should vary with your risk appetite and, with your age or time to retirement. 

We reject any notion that bonds are broken, when liquid, high-grade bonds have performed as they should to diversify portfolios and defend and protect in March when equities fell sharply.

As specialist high-grade bond portfolio managers, we are concerned about capital preservation. If I were investing in equities, I’d look for companies that are solid blue chips that have the ability to grow and adapt to a new normal, throughout the cycle.

• Donald Amstad, Aberdeen Standard Investments - Consider alternative investments and strategies

I would recommend the use of alternative investment strategies that have the breadth, versatility and flexibility to generate a real return irrespective of the direction of markets, profit from market falls and ongoing volatility. This is where multi-asset absolute return (or global macro) comes in.

These strategies can invest across many different markets and types of investments based on a continuous assessment of the global economic, political and market environment. Holdings may include long and short positions in various equity, fixed income, currency, commodities, and futures markets. Importantly, offerings in this space have the mandate flexibility to take a cautionary stance when fundamentals do not make sense, while also moving in anticipation of market trends. 

This provides the potential to deliver a positive performance in a wide variety of market conditions. Other ideas:

• Emerging Market Local Currency Debt (EMD LC) - In the context of very low developed country yields, EMD LC presents one of the few remaining attractive propositions for the ever-growing global cohorts of income-seeking investors. The fact that the AUD and EM currencies are highly correlated means that, almost uniquely, Australian investors can clip the high coupons on offer with only limited levels of FX volatility. 
• China A-Shares - Now on the equity side I really like China A-shares. The investment opportunity here is very attractive and given the market size, liquidity and inefficient nature (less analyst coverage), alpha opportunities are abound. The A-share market, which has only recently opened up to foreign investors, is under-owned, especially given the size of the Chinese economy. 

• Anton Tagliaferro, Investments Mutual Limited - Quality companies are King

In this environment good-quality companies should continue to do well, so we will continue to add to companies we believe are well-positioned for the next three to five years, that are trading at what we believe is a reasonable price, and where we are confident the company’s earnings and dividends are likely to be resilient over the next two to three years.

We’ve selectively put our cash to work to buy companies such as Amcor (AMC:ASX), Ausnet (ASX:AST), Coles (ASX:COL) and Tabcorp (ASX:TAH) on weakness. These companies possess a strong competitive advantage and recurring earnings, and we believe they are well-positioned for the economic conditions ahead.

We like companies with strong franchises and long duration assets, so we’ve also been buying companies like Aurizon (ASX:AZJ), which owns the Queensland rail network and Orica (ASX:ORI) – the No. 1 player in the global explosives market. Orica has high barriers to entry and long-term contracts in place, and although some of its markets such as South America have been closed for a period – which will affect its 2020 earnings – we think 2021 and beyond will be very favourable for the company.

Time for reflection

So there you have it. While our bulls and bears have different views on the market direction, they have shown opportunities exist for both approaches. They have both provided ideas for where they would put their money along with the reasons behind their choices. The bulls are happy to name names, while the bears largely prefer to discuss strategies.

There is no doubt COVID-19 has had an enormous effect on sharemarkets around the world. But whatever your views – bullish or bearish – we hope this series has given you food for thought. It’s a great time to review your portfolio and we hope our experts have provided you with some new ideas for your next moves.

The Bull versus Bear series so far

This article concludes our four-part series, exclusively written for Livewire Markets subscribers. Here are links to the other wires:

• PART 1 - Bulls are bucking, bears are hunting
• PART 2 - Why you should fear the big bad bear 
• PART 3 - A retest of the March lows? The bears are kidding themselves
• PART 4 - Where to invest if you're a bull or a bear