What did Morningstar subscribers buy and sell in April?

Sharesight is a portfolio tracker that is integrated into Morningstar Investor. Their data shows the top 20 trades by Morningstar users in April. This is our third monthly wrap which allows us to highlight shifts in investor sentiment month on month.

Sharesight’s data above ranks total trading activity which is split between sells (orange) and buys (yellow). Woodside (ASX:WDS) and WiseTech (ASX:WTC) have maintained the top two spots month on month with similar volumes. In terms of direct equities: Telix Pharmaceuticals (ASX.TLX), Magellan Financial Group (ASX.MFG), Resmed (ASX:RMD) and Endeavour (ASX.EDV) all saw a significant uptick in trading activity in April. In the ETF space, Global X Semiconductor ETF (ASX:SEMI) and Betashares Australian Technology ETF (ASX.ATEC) made their way back onto the list. Let’s dive into the three biggest investment trends for April and test the market narratives against our analysts’ views. But first, here are the key macro influences that impacted investors in April.

Macro trends in April

The month of April saw the ASX200 return a meagre 0.2% as inflationary pressures continue to sour market sentiment. The inflation data released in April saw headline inflation jump dramatically, largely driven by higher fuel prices. Morningstar strategist Lochlan Halloway argues that Australia’s inflation challenge is structural, stemming from weak productivity. In other words, even if external factors such as oil prices ease, improving productivity remains critical to bringing inflation sustainably lower.

For investors, higher inflation erodes real returns by reducing purchasing power. Higher inflation also impacts the share market as it typically results in central banks increasing the cash rate. Higher interest rates change how investors think about risk. When cash and term deposit rates rise, investors demand more compensation to hold riskier assets like shares.

This increased hurdle is known as the required rate of return. When the required rate of return increases, investors become more selective. In theory, share prices must either fall from current levels or companies must demonstrate that they can deliver stronger and more reliable cash flows to justify their current valuation. A real world example of this is in our own technology sector. ASX technology shares have fallen out of favour with investors as the market turns to a “risk off” environment.

Against this backdrop, trading activity in April provides an insight into how Morningstar subscribers responded. It is clear in the Sharesight data that investors are rotating between sectors, reassessing risk and positioning portfolios for an environment where inflation and uncertainty remain front of mind. Now let’s look at three investments in April which are trending and discuss our analysts’ views.

Telix Pharmaceuticals (ASX.TLX)

• Fair Value Estimate: $18 (20% discount at 12 May)
• Rating: ★★★★
• Moat: None

Telix Pharmaceuticals (ASX: TLX) is an Australian healthcare company focused on improving how cancer is detected and treated. Its main product Illuccix helps specialists identify prostate cancer by targeting specific markers on cancer cells. Illuccix has gained strong traction globally in the radiopharmaceutical industry.

The company is also investing heavily in new treatments and imaging tools, including potential products for kidney and brain cancer. Arguably its most important pipeline drug TLX591 is currently in late-stage trials with early results expected this year and a potential launch by 2029 if successful.

Telix shares rose 13% in April with a steady quarterly update, highlighting continued growth in Illuccix sales and solid global demand. Investors also responded positively to progress across its pipeline of new treatments explaining the increased trading activity seen in the Sharesight data. At the current price, the shares are trading at a slim discount to fair value offering some upside for investors.

Endeavour Group (ASX.EDV)

• Fair Value Estimate: $5.40 (40% discount at 12 May)
• Rating: ★★★★★
• Moat: Wide

Endeavour Group rose around 4% in April. The company is Australia’s largest liquor retailer, owning household names such as Dan Murphy’s and BWS as well as operating more than 300 pubs, clubs and hotels nationwide. Endeavour’s recent trading update saw sluggish sales momentum, growing by 1% year to date. Despite this, our analyst Johannes Faul highlighted the company is gaining liquor market share over its main competitor Coles. Comparatively, Coles has seen a 4% drop in liquor sales through to March this year.

While near term economic headwinds persist, Johannes believes the market is underappreciating Endeavour’s long-term outlook. Weak consumer confidence is expected to turnaround next year with a forecast reduction in petrol prices acting as a catalyst. Over the long run, liquor demand remains relatively defensive. Liquor sales are structurally driven by inflation, population growth and premiumisation.

The wide moat rating is driven primarily by the liquor business, where it controls approximately half of the market. Key competitors include Coles (Liquorland), with around 17% share and Metcash supplied independents, which collectively account for roughly 30%. Endeavour’s scale advantage versus peers allows it to dominate through its superior margins. At the current price, Endeavour is materially undervalued with current yield is 5.2% fully franked.

Vanguard Australian Shares High Yield ETF (ASX:VHY)

Morningstar Medallist Rating: Bronze

The Vanguard Australian Shares High Yield ETF attempts to fully replicate the FTSE Australia High Dividend Index. This index is market-cap weighted, made up of ASX companies with above average forecasted dividends. The biggest sector exposure is financial services, at around 40% of the index. Weighting in materials is around 20% however this tends to bounce around given mining company earnings are cyclical. On the flip side, this ETF is persistently underweight technology and healthcare given these companies typically reinvest a large proportion of their cash flow into R&D. This ETF has a clear value style tilt relative to our Morningstar category index.

The increase in trading activity in this ETF makes sense given the current economic environment. Investors are increasingly looking for steady, cash generating businesses with visible cashflow. Our manager research team places VHY in the cheapest quintile of the Morningstar Australia Fund Australia Equity Income category. This cost positioning translates into a Medalist Rating Price Score of 1.95. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.