Rudi’s View: How To Benefit From EOFY Selling

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | May 30 2024

By Rudi Filapek-Vandyck, Editor

News flash: the end of financial year is approaching. Only four more weeks (approx) and FY24 tax preparations are back on the menu.

Us humans being ourselves, we do remain creatures of set habits, the above also means many among us will be having another look at our portfolio and decide it's time for a necessary clean-out.

Usually there are at least a few disappointments in there that our accountant tells us to sell, so he (she?) can lawfully reduce our tax bill for the year. And isn't it time to get rid of those mental blemishes anyway?

Quant analysts at Macquarie have tried to put a little bit of extra science behind trading patterns in the coming weeks so that, maybe, investors (and traders) can use the input to their short-term advantage.

It has been documented, and observed, on multiple occasions in the past that certain stocks will inevitably (predictably?) weaken in June, only to rally quite noticeably in July. Sometimes the difference in trend is made up by only a few days on each side of the June-July demarcation line.

So, assuming we'd like to play the end-of-financial-year schemozzle, what should investors be on the look-out for?

Macquarie's research has identified two types of stocks that are most likely to fall victim to EOFY-selling:

-stocks with low momentum that haven't worked out (those are relatively easy to recognise)
-high-risk, low quality stocks

While the first category is often pointed at, given a general portfolio clean-out usually involves the disappointments of the year past, the second category comes a bit as a surprise. Macquarie explains there tends to be a difference in general risk appetite among investors on each side of the June-July divide.

Leading into the FY24 finish line, investors tend to become more risk-averse as they draw conclusions for yet another year about to end, but come July our general focus, apparently, all-of-a-sudden stretches further out, and we are more willing, yet again, to take a longer-term view, and take on board more risk.

The fact those non-performing, higher-risk stocks are now trading at a cheaper price might also have something to do with it, maybe?

Long story short, Macquarie's effort is only the latest in a long conga line of research analysts who've identified an obvious, short-term trading opportunity for those keen to exploit fairly predictable buying and selling in the coming eight weeks or so.

Stocks that should, on Macquarie's assessment, experience selling pressure in June, include:

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