Cashed-up and cautious pandemic investors await next market dip

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After the rush to open share trading accounts to snare Australian shares cheaply during the pandemic market downturn, investors are letting their cash build up while they wait for the next sustained dip in prices.

Retail investors are cashed-up, cautious and waiting for the next opportunity, says Gemma Dale, director of SMSF and investor behaviour at Nabtrade, the investment trading platform of National Australia Bank.

Nabtrade’s Gemma Dale says the investment platform’s investors are building up cash as they get ready to pounce on sharemarket bargains when the next sustained downturn comes.Credit:

Even though investment professionals say it is time in the market that builds wealth, rather than trying to time the market, the vast majority of Nabtrade’s clients “understand the importance of timing, and that’s driving a lot of their behaviour”, Dale says.

Buying shares in quality companies cheaply makes it more likely investors will enjoy good returns over the longer term, rather than buying shares that are expensive. With the onset of COVID-19 in early 2020, Australian share prices fell 30 per cent in three weeks, but prices bounced back relatively quickly.

Fifty per cent of Nabtrade investors opened their accounts during the pandemic – grabbing the buying opportunity to buy stocks cheaply – and are doing extremely well, Dale told an investor conference hosted by Morningstar.

As the Australian sharemarket recovered, and has become more expensive, the activity of Nabtrade’s investors has declined, with many allowing their cash holding to rise.

Dale says the bank’s cohort of retail investors are “keeping their powder dry” for the next market pull-back.

Most of Nabtrade’s investors own shares in only a handful of companies. The most popular Australian-listed shares include the big banks, BHP, CSL and Telstra. Lithium stocks, such as Pilbara Minerals and Liontown Resources, are also popular with the trading platform’s investors.

Exchange-traded funds (ETFs), particularly those that track the performance of Australian shares, are popular, particularly among the platform’s younger investors.

ETFs, including actively managed ETFs, as a portion of total holdings among Nabtrade investors, has grown from 4 per cent to 11 or 12 per cent, Dale says. Most international holdings are US-listed companies, with Tesla the most popular, followed by Apple and Microsoft.

Fidelity’s Paul Taylor is a fan of Suncorp.Credit: Louie Douvis

As to the Australian-listed companies that will likely provide good returns over the longer term, Paul Taylor, head of investments Australia and portfolio manager at Fidelity International, nominates Suncorp.

Premiums charged by general insurers are rising and Suncorp is simplifying its business and is trying to sell its banking arm, after which it will be solely a general insurer, Taylor told conference attendees.

He also likes Ramsay Health Care, the private hospital operator. It had a fall in the number of elective surgeries during COVID, but the demand for elective surgery is returning.

Among the resources companies, Taylor particularly favours those extracting “transition minerals” – such as lithium, cobalt, copper, nickel – which are used in electric vehicles and batteries.

Fidelity’s biggest position among these miners is IGO, which, Taylor says, has the “best assets in this space”.

James Holt, head investment specialist at Perpetual Equities, likes Iluka Resources, a producer of zircon and rutile. The minerals are used in all sorts of industrial processes.

Iluka is also building Australia’s first fully integrated rare earths refinery. Holt told the conference that within 10 years it is likely the miner will have the majority of its earnings coming from rare earths, whose applications include electric car batteries, smartphones and TVs.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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