Relative Sector Value Of Australian Equities

Every quarter we run our state of the art filter over the industry sectors that trade on the ASX.

It relies pretty heavily on the art part, but anyway the objective is to contrast valuations with earnings expectations to get a sense of where the sectoral opportunities might lie.  

By way of explanation, a lower number on the value ranking generally reflects a lower market valuation for that sector’s earnings. The ranking seeks to take into account the variations that occur within a given sector over time and across sectors – the question being ‘is the sector relatively cheap relative to it’s own historical performance and relative to other sectors’. The earnings outlook again takes a forced ranking approach where a higher number on the earnings outlook reflects a more favourable outlook for earnings for that sector relative to others.

The following chart summarises the results:


The point of the exercise is to insert a little big picture analysis into our portfolio management. While it is clearly broad brush in its approach, it serves as a cross reference against existing positions and to potentially find new areas of interest. Given my value orientation, the sectors in green generally attract immediate interest. However, the prospect of buying into sectors in the red zone has appeal, where there is a strong argument that the stock or sector is still undervalued relative to its growth outlook. Note too that Thefollowing chart summarises the results:this approach says very little about individual stocks – it wouldn’t be a very macro if it did.

The following tables list the data for individual sectors.

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