It has been another impressive year for the S&P/ASX 200, with the index returning a total of 17.6 per cent to investors.
Returns haven’t been evenly spread across each sector as the broader economy grappled with reduced mining spend and a strong currency, choking export-driven sectors.
The materials sector leads disappointment as majors BHP Billiton and Rio Tinto wrote down asset values and sold non-core assets to bolster balance sheets. Expanding capacity at existing mines and improving cost efficiencies in iron ore wasn’t enough to excite investors and offset sharp declines in earnings per share.
While there has been negative sentiment toward the sector for most of the year stemming from concern over future growth in China, BHP and Rio and other miners are more efficient companies and should see their fortunes turnaround in 2014.
In total, the materials index underperformed the S&P/ASX 200 by close to 20 per cent. Ouch.
So it is obvious materials dished up the undesirable result, but consumer-discretionary stocks enjoyed the traction lower interest rates were starting to have in the broader economy, climbing over 30 per cent over the year. It also helped that the sector was rallying off such a low base and investor inclination to take a little more risk.
Of the stocks, JB Hi-Fi was a standout, gaining a staggering 97 per cent! The company continues to expand both its stores and sales growth, a feat few retailers have been able to convincingly achieve. With a constant string of new electronic and technology pieces being released, JB Hi-Fi can continue to deliver sales growth, irrespective of broader macro-economic conditions. Definitely a company to watch in 2014.
The other major play of the year comes from leveraging on companies generating the majority of their earnings in US dollars. While it took eight months before the currency was comfortably buying less than 90 US cents, it looks to be at lower levels for some time yet in light of the Federal Reserve winding back on the current asset-purchase program.
James Hardie Industries (red line), ResMed (green line), CSL Ltd (pink line) and Brambles have all thrived on expectations for a lower domestic currency (exchange rate detailed by the white line).
The ASX has consistently underperformed its peers in recent years. While it doesn’t look like 2014 will snap this trend, continually improving economic conditions could close the gap.