Christine St Anne is Morningstar's online funds and ETFs...

Christine St Anne is Morningstar's online funds and ETFs editor.


There is now value to be found in resources, while financials have lost their cheap appeal, according to Russell Investments portfolio manager Scott Bennett.

In response to the changed valuation levels between the two sectors, the Russell Australia High Value Index (RVL) rebalanced its index. The investment manager clawed back its previous overweight position in financials and instead has gone overweight in the resources sector.

The index is rebalanced on a semi-annual basis. The RVL has been developed to buy companies that are trading cheaply and sell companies that are trading at higher prices relative to the broader market.

Bennett believes the market has changed recently, and as such, the value opportunities have shifted in favour of resources.

"The resources sector has materially underperformed the broader market by about 8 per cent. At the same time, banks have outperformed the market by 10 per cent," Bennett says.

Bennett believes the sharemarkets have been overly pessimistic on the resources sector. Resources companies are therefore trading at heavily discounted prices.

The RVL now has overweight positions to the big miners, including BHP Billiton (BHP) and Rio Tinto (RIO). Bennett finds greater value in the larger companies in the resources sector, but says medium-sized firms such Lynas Corporation (LYC) also provide reasonable value.

Although there are fears of a slowdown in China, Bennett believes any such slowdown will result in a soft landing.

More info at...

http://www.morningstar.com.au/etfs/article/resources-financials/4079