Tag: Motley Fool

The Nasdaq Composite (NASDAQ: .IXIC) took a beating overnight as rising bond yields continued to threaten the roaring equity markets. S&P/ASX 200 Index (ASX: XJO) tech shares are tipped to follow the lead of the United States when the market opens today.

Let’s take a closer look. 

Yields rising to highest levels since January 2020

Benchmark US government yields pushed higher overnight to close at a 14-month high of 1.73%. Yields have more than tripled from August 2020 lows of 0.50% and almost doubled year to date from 0.90%.  

Rising bond yields reflect a sign of optimism as stimulus and pent-up consumer demand could lead to a rise in inflation. This comes as the US is dishing out its US$1.9 trillion stimulus package which plays into the rising inflation narrative.

The roaring equity markets have become addicted to record-low and near-zero interest rates. Record low-interest rates have meant that investors must take on more risk to maintain the same return. This translates to a flow of funds from low-risk assets such as bonds into higher-risk assets such as equities. 

Expanding vaccination campaigns and a reopening global economy has now put the issue of rising inflation back on the table. Subsequently, rising inflation has brought the topic of possible interest rate hikes to the fore, putting pressure on the tech-heavy Nasdaq.

Some countries have already opted to raise interest rates in response to growing inflationary pressures. These include Ukraine, Brazil, Georgia and Turkey.

The US Federal Reserve has attempted to curb the concerns of rising interest rates by reaffirming that no hikes are likely until at least 2023. 

Tech and growth shares most vulnerable to rising interest rates 

Tech and growth shares are most vulnerable to higher interest rates. Most of these companies are expected to deliver significant growth in the medium to long term. From a valuation perspective, these futures earnings would be worth less today when discounted by higher interest rates.

This compares to value shares in sectors such as financials, commodities and real estate that are less vulnerable to rising rates. 

This could explain why the Nasdaq took a 3% dive overnight, compared to the S&P 500 Index (SP: .INX) that lost 1.48% and the Dow Jones Industrial Average Index (DJX: .DJI) which fell only 0.46%. 

US banks such as Wells Fargo & Co (NYSE: WFC) and Bank of America Corp (NYSE: BAC) finished the overnight session in the green. Meanwhile, US tech heavyweights Facebook Inc (NASDAQ: FB), Apple Inc (NASDAQ: AAPL), Amazon.com Inc (NASDAQ: AMZN), Netflix Inc (NASDAQ: NFLX), Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) all fell between 1.90% to 3.50% 

This could influence the way the ASX 200 plays out today, with potential weakness across tech shares and greater resilience across cyclical stocks such as the big four banks.

More reading

• 5 things to watch on the ASX 200 on Friday
• ASX 200 drops, Webjet reveals B2B plan, Cimic wins again
• ASX 200 down 0.15%: Westpac asset sale, Webjet update, gold miners jump
• ASX 200 dips, CBA launches BNPL, Fonterra reports
• Why the Elders (ASX:ELD) share price is outperforming the ASX today

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (C shares), Amazon, Apple, Facebook, Microsoft, and Netflix and recommends the following options: short March 2023 $130 calls on Apple, long January 2022 $1920 calls on Amazon, short January 2022 $1940 calls on Amazon, and long March 2023 $120 calls on Apple. The Motley Fool Australia has recommended Alphabet (C shares), Amazon, Apple, Facebook, and Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Webjet Limited (ASX: WEB) share price pushed higher on Thursday after releasing an update on its transformation plans.

The online travel agent’s shares overcame the market weakness to rise 1% to $6.24.

Can the Webjet share price keep climbing?

In response to its update, this morning Goldman Sachs released a note discussing its plans.

The good news for shareholders is that the broker liked what it saw and has reiterated its buy rating and $7.36 price target on Webjet’s shares.

Based on the current Webjet share price, this price target implies potential upside of 18% over the next 12 months.

What did Goldman say about the update?

Goldman took away a number of positives from the update. This includes its cost reduction plans and the long term opportunity that its WebBeds business has.

It commented: “Webjet hosted an investor presentation focused on the Bed banks business, discussing the longer term opportunity and the roadmap towards achieving c. 20% cost efficiency at full scale. The presentations provided comfort, in our view, regarding the growth opportunity for Webbeds in terms of market share improvements and permanent cost efficiencies while also discussing the longer term vision in terms of technology adoptions and targets.”

The broker notes that its cost efficiency is expected to be achieved through systems simplification, the implementation of a new ERP, and leveraging blockchain technology.

What about WebBeds’ growth opportunity?

Goldman Sachs was pleasantly surprised by management’s total transaction value (TTV) aspirations for the WebBeds business.

The company is targeting a much greater share of the market than the broker was expecting, which would lead to more than double the TTV its analysts were forecasting.

It explained: “Webjet also quantified the TTV aspirations for the Webbeds business at A$10bn, which would represent c. 14.2% market share of the current addressable market. Our longer term forecasts currently imply only TTV of A$3.9bn for the Webbeds business, offering significant upside to our outlook if the group starts delivering to its aspirational targets.”

However, no changes are being made to the broker’s forecasts just yet. It intends to sit tight and see how things develop.

“While the upside suggested by WEB implies significant upside to our long term forecasts, we make no changes to our earnings forecasts until we see clear evidence of a recovery taking shape. Our 12 month target price on WEB is at A$7.36 and we are Buy rated.”

More reading

• 5 things to watch on the ASX 200 on Friday
• ASX 200 drops, Webjet reveals B2B plan, Cimic wins again
• Webjet (ASX:WEB) share price edges higher on strategy update
• ASX 200 down 0.15%: Westpac asset sale, Webjet update, gold miners jump
• Why Webjet (ASX:WEB) got kicked out of ASX All Tech index

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There’s a handful of small cap ASX shares that have very high growth potential.

That doesn’t mean that large market cap ASX shares can’t generate good returns too – just look at CSL Limited (ASX: CSL) over the last decade – but small businesses are starting from a much smaller base and may be able to deliver more compound returns over the next five or ten years as plans turn into fruition.

Volpara Health Technologies Ltd (ASX: VHT)

Volpara is a healthcare software business that was founded in 2009. Its software is used by screening clinics to provide feedback on breast density, compression, dose and quality, while its enterprise-wise practice-management software helps with productivity, compliance, reimbursement and patient tracking.

It wants to increase its average revenue per user (ARPU) and market share over time. It is doing this through acquisitions and with organic growth. The acquisition of CRA Health could accelerate growth because of its higher ARPU and its integration with major electronic health record and genetics companies. Volpara recently won its biggest contract thanks to CRA Health.

On Thursday, the small cap ASX share announced some positive news from Europe. Its DENSE trial, based in the Netherlands, started collecting patients data 10 years ago and is the first randomised controlled study on the clinical utility of breast MRI supplemental screening for women with extremely dense breasts. The study used VolparaDensity software to assess breast density.

The first results from DENSE, released in December 2019, showed a significant reduction in interval cancers in those women being selected for breast MRI using VolparaDensity, but with a relatively high false-positive rate.

The results released this week, involving more than 3,000 women, show that the false-positive rate has been significantly reduced. Though the incidental cancer detection rate was lower than that of the first round, the false-positive rate was only 26.3 versus 79.8 per 1,000 screening examinations.

The Volpara CEO said that this makes the new protocols much more viable and that there’s a real benefit to women.

Bubs Australia Ltd (ASX: BUB)

Bubs has been through some tough times over the last six to nine months due to COVID-19, however, it’s now reporting that it’s going through a recovery.

The infant formula small cap ASX share said that it’s now the number one goat formula brand in Chemist Warehouse and the number two in Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) supermarkets. Combined retail scan sales grew by 55% at the checkout at Coles, Woolworths and Chemist Warehouse in the first half of FY21.

In that result, Bubs goat infant formula gross revenue direct to China increased by 36%, partly offsetting the large disruption to the outbound daigou channel (with revenue down 57% here).

One of the main areas where Bubs sees major potential growth is export markets outside of China. In the first six months of FY21, non-Chinese export revenue went up 44%, with sales momentum expected to continue across new South East Asian markets.

The company has been working on other initiatives to grow its business over the next 12 months and beyond. For example, it has selected YP Corporation to be its nominated distribution partner for South Korea, which is a US$431 million infant formula market. YP serves all major e-commerce channels along with mother and baby stores, department stores and hypermarkets.

Bubs executive Chair Dennis Lin said:

We can say that we expect to achieve modest half on half gross revenue growth in the second half of FY21. We are confident we are well placed with strong foundations, brand share growth and a robust balance sheet to go forward with a sustainable and profitable expansion strategy to emerge as a leader challenger brand once the crisis subsides and market dynamics stabilise.

More reading

• Why Corporate Travel Management, Silver Lake, Volpara, & Vulcan are pushing higher
• Here’s why the Volpara (ASX:VHT) share price is storming higher
• 3 ASX Healthcare shares feeling a little under the weather
• Afterpay (ASX:APT) and another ASX growth share to buy right now
• Here’s why the Volpara (ASX:VHT) share price is surging 7% higher

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends VOLPARA FPO NZ. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BUBS AUST FPO and CSL Ltd. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended BUBS AUST FPO and VOLPARA FPO NZ. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The first two and a half months of 2021 haven’t been particularly great for Amazon.com Inc (NASDAQ: AMZN) shareholders. The Amazon share price is down about 5% for the year while the Nasdaq Composite (NASDAQ: .IXIC) index is up over 3% and the S&P 500 Index (SP: .INX) is up 5%.

While I’m extremely bullish on Amazon shares — it’s my largest holding and I bought more last month — it’s worth noting there are a few reasons the stock could continue to underperform this year. 

Here are three big ones.

No more COVID-19 tailwind

Amazon was a big beneficiary of the shift to online shopping amid the COVID-19 pandemic. U.S. e-commerce sales grew more than 36% over the past three quarters of the year, according to the U.S. Census Bureau. 

North American e-commerce grew nearly 32% for the full year, according to estimates from eMarketer. And global e-commerce wasn’t too far behind, with 28% growth.

But Amazon will move beyond that tailwind this spring, and as brick-and-mortar stores reopen, shoppers may shift some of their purchases back to in-store transactions. eMarketer expects worldwide e-commerce sales growth to slow to 14% this year, and U.S. e-commerce may grow only 6%, according to its analysts’ estimates. 

A stark slowdown in revenue growth could scare off a lot of investors. Any top-line miss versus Wall Street’s expectations could easily send shares lower.

Amazon’s going to spend a lot more on logistics this year

2021 will be a transformative year for Amazon Logistics. The company’s airhub at Cincinnati/Northern Kentucky International Airport will start operations later this year, with capacity for 200 flights per day. 

What’s more, Amazon is making deals for more planes, looking to own a greater piece of its logistics business. It bought 11 planes this year. It also now owns a minority stake in cargo airline partner Air Transport Services Group after exercising warrants it acquired in its previous deals with the company. It has similar positions with other cargo carriers it could exercise as well.

Amazon will spend a lot of money on logistics network capacity this year, and that ought to continue for several years to come. CFO Brian Olsavsky has warned investors that capital expenditures will move higher. “We do see continued expansion on capex, specifically in our transportation area. So that will be the start of probably a multiyear period where we’re higher on capex for that,” he said during Amazon’s third-quarter earnings call last year.

Amazon has historically done well by investing in additional shipping and logistics capabilities. The more in-depth expansion to truly own and control the logistics network could transform into an even bigger opportunity that more efficient shipping for the retail business. It could become a true competitor for logistics services. 

But increased spending will put a short-term damper on profits and cash flow, which could give investors of the high-priced stock concern.

Looming regulatory risk

One factor that’s affecting all big tech stocks right now is the risk of increased government regulations forcing them to dramatically change company policies and operations or divest assets.

As Amazon’s business has evolved to offer more third-party seller services for small businesses and advertising, it faces increased scrutiny to ensure it’s not creating an anticompetitive environment with its own retail operations and products.

That said, it’s likely in Amazon’s best interest to make its third-party merchant services, advertising products, and other services as attractive as possible. They offer better margin profiles than Amazon’s core retail business, and they offer greater revenue growth potential.

So while new regulations, or just the threat of regulations, could hurt Amazon’s share price in the short run, the risk that they’ll negatively affect Amazon’s business and profits appears minimal.

Still a long-term growth story

If Amazon stock continues to underperform the market in 2021, it could present another opportunity for investors to buy shares. The current pullback in the Amazon share price made the stock very attractive, but it wouldn’t be a surprise if there are additional opportunities to snap up shares later this year as well.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• We’re betting on ASX growth shares: global fund
• Don’t fall into the ‘rotation trap’
• How to invest in the Nasdaq Index on the ASX
• The tech-heavy Nasdaq is now in a correction!
• Here’s why you should think twice about chasing the next hot ASX trend

Adam Levy owns shares of Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Demand for shares from Airtasker Limited (ASX: ART) staff during its initial public offering (IPO) ended up 10 times what the company offered.

Company chair James Spenceley made the admission during a chat with The Motley Fool.

“We set aside a figure for [shares to] internal staff, and it ended up being 10x that number,” he said.

“We’re talking north of $1 million from internal staff. That blew me away.”

The gig economy platform is floating on the ASX on Monday after an IPO that sold its shares at 65 cents.

The market seems to be rotating away from high-growth technology shares, just as Airtasker is about to list. The S&P ASX All Technology Index (ASX: XTX) has dropped almost 14% since its recent peak on 10 February.

Spenceley, who was also the founder of Vocus Group Ltd (ASX: VOC), told The Motley Fool he was not worried about temporary market movements.

“Quality businesses are still doing well. The ones that have a lot of hot air in them are moving around quite a bit,” he said.

“We’re pretty confident. Both [chief executive] Tim and myself, we’re here for the long run. I’ve seen the power of this business.”

Labour market concerns for Airtasker?

Gig economy platforms have been under the spotlight in recent times for their relationship with the people who provide the service.

Those businesses have maintained them as independent contractors in order to avoid the overheads involved if they were counted as employees.

But the shortcomings of that model have attracted critics, who say many workers are underpaid and lack physical, legal and financial protections.

Just this week, a UK court ruling forced Uber Technologies Inc (NYSE: UBER) to reclassify 70,000 vehicle drivers as workers. This entitles them to benefits such as holidays and a minimum wage.

Potential labour regulations were not a concern for Airtasker, according to Spenceley, as its business model was different to transport and food delivery providers.

“[Other platforms] are incentivised to squeeze the person doing the work as much as possible so they make more money,” he said.

“We have the reverse – we only get paid when the task gets completed, and we only get paid a percentage of the task. There’s an incentive for us to have our taskers earn more money.”

Airtasker chief executive Tim Fung told The Motley Fool that in his discussions with unions and the government, everyone’s goals seemed to be aligned.

“We want the exact same things. We want to create high-quality work for Australians. And we want to have a positive impact on the future of work.”

Expansion and customer development

While the 6-month focus after the ASX listing will be amplifying the marketing within Australia, Fung is keen to grow internationally in the long run.

“We’ve launched a marketplace in the UK. And we’ve recently opened up markets in Singapore, New Zealand, Ireland and the US.”

The Motley Fool has previously reported Airtasker is increasing its average value per task.

The average dollar value in the early days almost 10 years ago was $97 per task. That had gone up to $159 for the 2020 financial year, while $189 is forecast by the end of the current year.

Fung attributed this to some taskers having built up tremendous trust and respect through performing thousands of tasks over the years.

“Customers are demanding more sophisticated and complex work through Airtasker,” he said.

“We’re starting to see people come to Airtasker and say, ‘I need someone to do tax advice for me. I need a lawyer to write up an agreement for me. I need an architect to design a home for me.’”

Airtasker shares will start general trade on the ASX on Monday with a market capitalisation of $255.4 million.

The company made a $5.2 million pro forma net loss after tax last financial year. It forecasts a loss of $6.2 million for the year in progress.

More reading

• Macquarie Group (ASX:MQG) is hungry for assets as its share price grows
• ASX 200 up 0.7%: Vocus jumps on takeover update, Afterpay crashes 9%
• Why AVZ, Legend Mining, Nuix, & Vocus shares are surging higher
• Vocus (ASX:VOC) share price on watch after accepting takeover offer
• Here’s why the Vocus (ASX:VOC) share price is pushing higher today

Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Uber Technologies. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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More reading

• Airtasker IPO: staff demand 10 times the shares offered
• How I’d build a portfolio by investing in top shares now
• Beach, Santos, & Woodside shares on watch after oil prices crash
• We’re betting on ASX growth shares: global fund
• 2 great ASX growth shares to buy

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Kate O’Brien owns shares of Apple and Rio Tinto Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Determining which companies can be classed as ‘top shares’ is very subjective. However, they could include businesses that have a competitive advantage, and that trade at fair prices given their financial outlooks.

Through buying a diverse range of them, it is possible to build a portfolio that can deliver attractive returns over the long run. With many opportunities to buy undervalued shares still available despite the recent stock market rally, now may be the right time to start the process of capitalising on today’s top stocks.

Defining which companies are top shares

Businesses with competitive advantages over their peers may be more likely to be classed as top shares. For example, they may have a unique product that means they can generate higher margins than their rivals. Or, they could have a lower cost base and stronger brand loyalty that lifts their financial performance over the long run.

Similarly, the most appealing shares may be those companies with solid balance sheets and strong cash flow. This point may be especially relevant at the present time, since the outlook for the economy continues to be very uncertain. Financially-sound businesses may be better able to overcome threats to economic growth caused by the coronavirus pandemic.

Meanwhile, top shares may be those companies that have all of the above attributes, but yet trade at low prices. Their low valuations may, for example, be caused by weaker recent performance that can be reversed over the long run. Or, investor sentiment towards their sector could be downbeat. This may present an opportunity to buy high-quality companies trading at low prices.

Building a portfolio of attractive stocks

Once top shares have been identified, building a portfolio of them can be a challenging task. After all, it is tempting to simply focus on a small number of the best ideas that are available at a given point in time. However, this may lead to high company-specific risk that means an investor is very reliant on a small number of holdings for their returns. Through buying a wider range of businesses, it may be possible to reduce overall risks.

Furthermore, holding some cash in case of a stock market crash can be a shrewd move. This does not mean that an investor relies on savings accounts for their returns. Rather, they have a limited amount of cash available so they can add more stocks to their portfolio should appealing opportunities come along in future. This may mean lower returns in the short run, but can provide greater opportunity to capitalise on the stock market cycle when seeking to buy top stocks.

Taking a long-term view

As ever, even top shares can experience periods of disappointment. Therefore, it is important to take a long-term view of any portfolio that contains equities. The track record of the global stock market shows that it can deliver attractive returns relative to other mainstream assets.

More reading

• Beach, Santos, & Woodside shares on watch after oil prices crash
• We’re betting on ASX growth shares: global fund
• 2 great ASX growth shares to buy
• Are COVID-19 vaccine worries affecting the CSL (ASX:CSL) share price?
• 2 high yield ASX dividend shares to buy today

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It looks set to be a tough day for energy producers such as Beach Energy Ltd (ASX: BPT), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL) on Friday.

This follows a disappointing night of trade for oil prices which saw the price of both Brent and WTI crude oil crash lower.

What happened?

Oil prices sank for the fifth day in a row on Thursday night after a strengthening US dollar, a stuttering COVID-19 vaccine rollout, and rising US crude and fuel inventories weighed heavily on sentiment.

According to CNBC, the Brent crude oil price fell 7% to settle at US$63.28 per barrel and the WTI crude oil price settled 7.1% lower at US$60 per barrel.

In respect to inventories, on Wednesday the U.S. Energy Information Administration (EIA) revealed that U.S. crude inventories rose by 2.4 million barrels last week.

Where next for oil?

Tamas Varga from PVM Oil Associates told CNBC that he believes short term factors are weighing on prices and remains positive on oil for the longer term.  

He commented: “Short-term developments – stuttering vaccine rollouts and the build in U.S. oil inventories – are driving sentiment, but the longer-term oil outlook is still encouraging. Yesterday’s U.S. Federal Reserve meeting provided a boost to equities … U.S. economic growth has been revised upwards while unemployment is expected to decline.”

One spot of good news for oil prices this morning is that European regulators have found that the AstraZeneca COVID-19 vaccine is not linked to overall increased risk of blood clots.

There were fears that the suspension of this vaccine globally could lead to a return to lockdowns in some regions, tempering expectations for a recovery in fuel use. So, with its rollout likely to restart now, fuel demand could continue its recovery in the coming months.

More reading

• 5 things to watch on the ASX 200 on Friday
• Hydrogen far from ‘fool cells’: EV trends and the major ASX players
• 5 things to watch on the ASX 200 on Thursday
• 5 things to watch on the ASX 200 on Wednesday
• 5 things to watch on the ASX 200 on Tuesday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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One global investment house has announced it is going contrary to the current market trend.

The investment committee for T Rowe Price Group Inc (NASDAQ: TROW)‘s Australian arm this week revealed its latest allocation strategy.

Globally, share markets have been shifting to value stocks in light of higher bond yields, possible inflation, higher interest rates and post-COVID lifestyles. The S&P ASX All Technology Index (ASX: XTX) has lost nearly 14% since 10 February.

But despite this — or perhaps because of it — T Rowe Price is backing two categories of stocks:

Australia is looking good

The T Rowe Price committee acknowledged the market’s anxiety about higher interest rates.

But the group maintained high rates were “likely far” away.

“Central banks made it pretty clear that they want low yields to be maintained. For this reason we are skeptical about the ability for interest rates to derail the recovery,” the committee reported.

“Recent actions taken by the Reserve Bank of Australia to buy government bonds to bring down long-term interest rates are a strong indication that monetary policy will remain accommodative.”

And with the economy recovering strongly as shown in this week’s positive unemployment numbers, the committee is optimistic about the Australian equities market.

“[Company] earnings are following through, benefitting from high commodity prices and record low yields,” stated the T Rowe Price report.

“The economic momentum is firing on all cylinders, evidenced by the economic surprise index at record high levels.”

Growth shares are looking good

While the market is rotating hard to value stocks, the T Rowe Price committee thinks now is the time to turn to growth.

“We have tilted portfolio positioning towards more domestic exposures to reflect the stronger economic performance of the Australian economy and also expect growth stocks to continue to do well in a contained yield environment,” it reported.

The advice backs up DeVere Group chief executive Nigel Green’s warning earlier this week to avoid the “rotation trap” — that is, don’t go overboard dumping quality growth stocks.

“The danger is the massive hype surrounding rotation from growth stocks – those expected to grow sales and earnings at a faster rate than the market average – into value stocks,” he said.

“Does anyone suddenly seriously think Amazon.com Inc (NASDAQ: AMZN), Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) and Tesla Inc (NASDAQ: TSLA) are not companies of the future also?”

T Rowe Price Australia is taking the profit earned on value shares it rotated to last year, and ploughing the cash back into growth.

“We remain well positioned in Australia in cyclical growth, recovery growth and high-quality stocks we believe will benefit as economic conditions continue to improve,” the committee stated.

“To fund these portfolio changes we have taken profit on defensive growth names and somewhat reduced exposure to offshore earners.”

Similarly, the committee was optimistic on Japanese and emerging market stocks. It reported the golden growth from the US tech sector seen in 2020 would not repeat this year.

The T Rowe Price Australia investment committee consists of the following experts:

• Richard Coghlan, multi-asset portfolio manager
• Randal Jenneke, head of Australian equities
• Thomas Poullaouec, head of multi-asset solutions Asia-Pacific
• Wenting Shen, multi-asset solutions strategist
• Scott Soloman, associate portfolio manager, fixed income division

More reading

• Don’t fall into the ‘rotation trap’
• How to invest in the Nasdaq Index on the ASX
• Elon Musk reviews title and decides ‘Technoking of Tesla’ is more fitting
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Tony Yoo owns shares of Alphabet (A shares) and Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Tesla and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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ASX growth shares can be good ideas to think about because they may be able to generate good long-term returns.

Businesses that can generate good profit growth and re-invest strongly into the business can lead to good shareholder returns. 

These two ASX growth shares could be good considerations:

Australian Ethical Investment Limited (ASX: AEF)

Australian Ethical is a fund manager that aims to offer a range of investment strategies that aim to invest in businesses that are doing good for the world and the environment.

The company boasts that it has been named as one of just six global leaders, out of 40, for ESG commitment by Morningstar. It was the only asset manager in Australia to receive this recognition.

There are three pillars to its investments. Regarding the planet, every decision is made with empathy and compassion for the planet and all those that inhabit it. Regarding people, Australian Ethical says that environmental and social concerns need to be given equal weight to financial outcomes. Finally, with regards to animals, it doesn’t invest in anything that’s unnecessarily harmful to animals.

The ASX growth share is seeing good levels of funds under management (FUM) inflows as well as solid investment performance.

In the result for the period ending 31 December 2020, FUM had grown to $5.05 billion – an increase of 30%. The ASX growth share saw record net inflows of $422 million (up 43%) and customer numbers were up 22% year on year.

Australian Ethical generated underlying profit after tax (UPAT) of 11% to $4.9 million and statutory profit went up 17% to $5.2 million. This allowed the board to increase the dividend by 20% to 3 cents per share.

The company continues to invest in growth initiatives, with $1.7 million of expenditure in the first half.

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

This could be one of the highest-quality exchange-traded funds (ETFs) on the ASX. The ASX growth share aims to invest in businesses, chosen by Morningstar equity analysts, that are believed to have sustainable competitive advantages, or wide economic moats.

Businesses with moats essentially mean that they’re hard to dislodge by competition. Imagine how much you’d have to spend to make a smartphone that people would buy rather than an Apple or Samsung one.

But this isn’t just a passive index. The holdings are businesses that are trading at attractive prices relative to Morningstar’s estimate of fair value. But it doesn’t come with an expensive active management price tag. The annual management fee is just 0.49% per annum.

All of the holdings in the ETF’s portfolio are listed in the US, but some of the names generate earnings from right across the world.

There are around 50 positions. Whilst there are names like Amazon.com, Alphabet and Microsoft in the portfolio, the top 10 holdings are not the typical largest positions in an ETF including: Charles Schwab, Wells Fargo, Corteva, Bank of America, US Bancorp, Boeing, Cheniere Energy, Intel, John Wiley & Sons and Blackbaud.

More reading

• Why VanEck Vectors Morningstar Wide Moat ETF (ASX:MOAT) could be the best ETF
• 2 high quality ASX ETFs to buy this month
• Brace for even more new ETFs to hit the ASX
• 2 top ETFs to buy in March
• Here’s why the Australian Ethical (ASX:AEF) share price is crashing 10% lower

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Australian Ethical Investment Ltd. The Motley Fool Australia has recommended Australian Ethical Investment Ltd. and VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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