What Worked Australia - 03 June 2016 - Momentum Reversal over, but not in a good way

What Worked

The momentum reversal, driven in large part by a pick-up in the market laggards, has come to an end. Momentum, both long and short, came back into fashion with the index leaders increasing their lead, while the laggards remained largely flat to the market. Broadspectrum Limited (BRS, +0.3%),  McMillan Shakespeare (MMS, +1.3%) and Cochlear Limited (COH, +2.2%) amongst the leaders over the last month that posted positive returns for the week, while Western Areas (WSA, -4.4%), Flight Centre Travel Group (FLT, -4.7%) and Independence Group (IGO, -5.4%) all continued down after a poor showing in the previous month. Most Value metrics posted positive results (just) this week, with forward PER coming out on top, however, largely driven by the buying into momentum that made the already expensive names a little more so.

Beta also took a hit this week as the index dropped -1.6%. High beta name like Santos Limited (STO, -2.4%), Origin Energy (ORG, -2.3%) and Beach Energy (BPT, -1.5%) all underperforming the index, while the low betas names like Resmed (RMD, +1.7%), Newcrest Mining (NCM, +3.7%) and Trade Me Group (TME, +0.9%) ended the week in the black.

Who Moved – Good portion of the market moved on significantly higher than normal volumes this week, although in large part, going the wrong direction for most investors. 14 names from the index saw movement backed by volume. In the winner’s circle, ALS Limited (ALQ, +12.1%), WPP AUNZ Limited (SGN, +8.9%) and Spotless Group (SPO, +4.6%) all ended the week higher, while Flexigroup (FXL, -11.8%), Japara Healthcare (JHC, -10.2%) and Sirtex Medical (SRX, -7.4%) all finished lower on very strong volumes.


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