Beats, meets and misses: a stock picker’s guide to the 2017 reporting season

Market insights

Chris Wu – Equity Analyst, Macquarie Investment Management
Tuesday 21 March 2017

As an active investment manager and a stock picker, reporting season is both confronting and rewarding. It is one of only two times a year we can assess our skill in forecasting earnings.

In this insight, we highlight key themes from the recent reporting season, including:

  1. Rotation of thematic performance
  2. Markets expectations for the year ahead
  3. How the Macquarie Australian fundamental equity team fared.

Reporting season performance – a thematic view

While our approach to stock picking is to focus on the ‘What matters’ to each stock, we think that understanding the market through a thematic lens is more intuitive than through the traditional sectors. This approach allows the team to better understand the risk in the portfolio. We have broken down the performance of each thematic relative to the ASX 200 index for the two recent reporting season months below.

Thematic performance relative to ASX 200

Source: Macquarie

Rotation of thematic performance

This reporting season saw underperformance from stocks exposed to both the China, primarily resources, and Global themes. On the flip side stocks exposed to the Australia and the Yield thematic outperformed.


Despite the uncertainty driven by political machinations in both Australia and the US, underlying fundamentals improved across companies with exposure to domestic consumption, housing and the ramp of infrastructure and engineering work.


The performance of the China thematic was in stark contrast to last reporting season where cyclicals such as Energy helped offset broader losses. Despite generally higher commodity prices (iron ore finished the month at US$92!), Materials were the worst performers this reporting season.


The improving trends for domestically exposed companies did not translate to companies exposed to the Global thematic.

Overall, the improving trends in domestically exposed companies is encouraging as the High Conviction Fund remains overweight the Australia thematic.

Market remains optimistic – but not broad based

Given higher commodity prices and generally improving trends in domestic companies, the market has become more upbeat for FY17. We estimate that the market is forecasting a18% growth for FY17, despite expectations of ~8% decline for FY16 this time last year. However, the higher earnings expectations heading into FY17 is not broad based. Much of this growth is mining driven with earnings expectations for ex-resources more modest.

EPS growth FY17 expectations

Source: Macquarie

This optimism is also evident in company guidance, with ~21% of large caps delivering positive guidance and only ~11% delivering negative guidance.

Expectations are also not equal across market cap, with the higher growth expectation driven by larger index constituents, specifically the top 20 by market cap. The dispersion in growth emphasises the importance of unconstrained stock picking when investing in the market.

Macquarie High Conviction Team – reporting season scorecard

Our belief is that companies that miss market expectations generally underperform. Conversely, companies that meet or exceed expectations tend to outperform. We embed this focus in our fundamental research process and measure our forecasting ability each reporting season. For each stock in the portfolios we classify whether they beat (we define as reported earnings >2% above consensus forecast), were below (reported earnings >2% below consensus forecast), or were in line (everything in between). The results are summarised in the table below.

Macquarie High Conviction Fund: February 2017 reporting season scorecard

Source: Macquarie


The divergent performance we saw during the reporting season reinforces our belief that unconstrained stock picking, whether it be by size or style, is a prerequisite to be able to consistently deliver returns above the market.

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