Go DOWN in size to win BIG

Monday, 6 September 2021 — Albert Park

[2 min read]

Dear Reader,

This was a low-risk idea with good income potential.

Now we have the evidence right in front of us thanks to this article in the Australian Financial Review this morning.

Check it out:

‘The listed landlords, or REITs as they are known, have outperformed the S&P/ASX200 by 8.5 percentage points over the past six months, driven by consensus earnings upgrades and strong growth in their net tangible assets.’

I put subscribers of Cycles, Trends & Forecasts into selected REITs as far back as last year. (You do need to be selective here like all sectors.)

The returns and income have been great…and the volatility low. All in all, a fine place to be!

We did a special report on REITs for our subscribers…it’s still available if you become a subscriber. Plus, you get the latest issues for the next 12 months.

While I like REITS long term, the immediate upside will likely moderate for the moment.

The market doesn’t wait around to show you an opportunity in the morning paper.

Our latest issue had my best idea for the next six months coming up. You can get a free glimpse of it here.

What did it show?

July credit was pretty much the same as June. There was $32 billion of new lending commitments going into the housing sector.

Month-on-month, there wasn’t much variance. But these figures are still up a lot on the equivalent period 12 months ago. Credit up equals housing up.

It’s hard to see anything that could derail the housing market anytime soon.

The fear over interest rate rises will linger…but one wonders what’s happening in offset accounts across the country.

The pandemic means people are paying off their mortgages faster. Their houses are also going up in value.

Therefore, the equity in homes across the country is becoming prodigious.

A few small interest rate rises — when and if they come — aren’t going to distress the middle class en masse…at least not in the next few years.

Meanwhile, investors will continue to chase the gains to be had in the housing market unless the regulators prevent them. Good luck with that!

That means the shares of the company would trade on the ASX and not on over in London as they do now.

This article points out that this ‘enlarged’ BHP would occupy 11% of the ASX 200. You get to about 50% of the index if you add in the big banks, the other big iron ore miners, Telstra, Wesfarmers, and Woolworths.

The main point being is that it’s very hard to generate alpha through that part of the market. They are so well covered that the market is very good at pricing those.

But don’t despair. There are lots of opportunities across the whole market. Especially outside the ASX 200. There are another 1,800-plus companies all trying (mostly, anyway) to create value for their shareholders, in different ways.

You are not likely to double your money buying Telstra.

But you have every chance of doing so in smaller stocks that are a) less well known and b) can generate meaningful growth in revenue from a much smaller base.
All stocks are risky. These are especially so because they don’t have, usually, profits.

However, the capital gains can be big on these if you get the right sector at the right time.

You can double your money here. If you’d like a spread of ideas where our small-cap experts think this is possible, go here to see their top seven ideas right now.

Regards,

Callum Newman,
Editor, The Daily Reckoning Australia