Barlow’s Research Roundup: These ‘well-owned’ stocks continue to outperform

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Well-owned stocks outperforming

Historically, investors have been rewarded for buying under-owned stocks but this has not been the case for the past year as BofA quant strategist Nigel Tupper reports,

“In the last 12 months, contrarian investors may have struggled as the most well-owned stocks globally (top 20 per cent by ‘Ownership’) averaged 47.0 per cent, while the ‘Low Ownership’ averaged 32.4 per cent. Currently, 92 per cent of relevant funds globally own TSMC. The other most well-owned stocks globally are ARM (89 per cent), Microsoft (84 per cent), NVIDIA (75 per cent), Amazon (74 per cent), Tencent (72 per cent), ASML (71 per cent), Broadcom (70 per cent), and Meta (68 per cent). Long-only funds added Materials and Energy last month. In April, long-only funds globally added exposure to Materials (up $6.8-billion) and Energy (up $5.3-billion). In contrast, funds reduced exposure to Semis (down $50.6-billion) and sold shares in Diversified Financials (down $17.0-billion), Software (down $9.9-billion), and Consumer Staples (down $9.7-billion). During the month, long-only funds bought the most shares in Japan (up $4.9-billion) and sold shares in the U.S. (down $61.4-billion) and Emerging Markets (down $50.9-billion). Crowded Positives vs Under-owned Negatives. In the last 12 months, ‘Crowded Positives’ (well-owned stocks + Positive Triple Momentum) have outperformed by 4.1 per cent. The current Crowded Positives include TSMC, Siemens Energy, KLA, MediaTek, and TotalEnergies. In the last 12 months, Underowned Negatives have underperformed by -2.5 per cent. ‘Under-owned Negatives’currently include Salesforce, ServiceNow, Intuit, Bharti (Airtel), and Infosys”.

For an in-depth look at stocks with positive triple momentum and their outperformance, see my Wednesday newsletter here.

Housing market still sluggish

Scotiabank analyst Mike Rizvanovic outlines what is still a very weak domestic housing market,

“The latest data on the Canadian residential housing market showed continued weakness in sales volumes during April, suggesting further moderation ahead in mortgage lending for the large banks, which is currently trending at a multi-year low. There were, however, some positives around stable-to-rising home prices for the third consecutive month in most large cities and no signs of a meaningful increase in inventory levels. We expect direct losses within the mortgage book to stay very low, consistent with recent trends, with a modest headwind on revenue to persist in light of rising bond yields that will likely push mortgage rates higher and act as a headwind on volume growth. Sales volume: Canada-wide home sales were down 4 per cent year-over-year in April, and remain well below historical levels (down 20 per cent and down 14 per cent vs. the prior 5 and 10-year average, respectively). The Greater Toronto Area (GTA) and Greater Vancouver Area (GVA) continue to be weak spots, each roughly 30 per cent below historical averages. Home prices mostly up month-over-month: Canada’s home price index (HPI) was up a modest 0.3 per cent month-over-month in April, marking the third consecutive month of sequential gains. Four of the six largest cities in Canada showed improvement in the month, including the GTA, which is still down 26 per cent from its peak in early 2022, but continues to show signs of stability. The GVA lagged with downside pressure on home prices month-over-month, while Montreal, which has been the best-performing market in Canada in terms of its HPI trajectory over the past year (up 3.6 per cent), was flat in April”

AI could overwhelm labour market

Morgan Stanley global director of research Katy Huberty publishes a highly useful summary of prominent research reports in her weekly “Charts that caught my eye” publication. This week’s edition featured a forecast for AI adoption,

“Expect Rhyme, Not Rupture.Our baseline assumes AI adoption proceeds twice as fast as the internet era, which should lift productivity and real wages without a large rise in unemployment or a macro downturn. Our scenarios imply peak annual productivity growth of 2.0-4.5 percentage points, consistent with the gains seen in the internet age. We believe the speed of diffusion is the main risk – we estimate that diffusion speed of 3-4 times that of the internet era could cause labor displacement significant enough to overwhelm the flexibility of the U.S. labor market”

Bluesky post of the day

Diversion

“This 3-Minute Video Game Is Surprisingly Good at Spotting Depression” - Gizmodo