Each Friday, corporate advisory firm Barclay Pearce highlights the key trading themes of the week, along with which companies and sectors Stockhead readers should be keeping their eye on.

This week saw another interesting development in the post-COVID recovery, with an update from the US Fed on the outlook for interest rates which leaned on the hawkish side.

Heading into the middle of the year, the focus has shifted to which companies will benefit in the tug-of-war between stronger economy growth and tighter liquidity.

In that context, Barclay Pearce’s Head of Trading, Trent Primmer, provided some insights in this week’s discussion on how he’s constructing the BP portfolio to fit the post-COVID economy.

Building your portfolio

In line with last week’s discussion with BP analyst Joseph Raad, Primmer has added positions in ASX oil stocks as crude prices push above US$70/barrel on a strengthening demand outlook.

“A lot of brokers I’ve spoken to over the past two or three weeks are saying oil is eventually going to hit $100 a barrel. So I’ve moved it up to an 8% weighting of the portfolio and I’d be happy to buy oil on any price weakness,” Primmer said.

And the firm is using those strong macro fundamentals to build positions in blue-chip ASX oil & gas plays, rather than the speculative end of the market.

“Lots of pople like ‘speccy’ plays in the oil space, but I’d be conscious of where the market’s at right now more broadly in terms of risk sentiment,” Primmer said.

“Just because demand is going up doesn’t mean prices for those juniors will rise exponentially.”

Instead, Primmer prefers “comfortable exposure” across a diversified group of blue chip oil & gas names.

Engineering company Worley Parsons (ASX:WOR) is another way to get exposure to the energy thematic, he said.

“They do a lot of engineering work for energy companies and they’re trading off their 12-month highs. I still they that stock looks fairly cheap and you’ll get some decent price moves in Worley if oil keeps tracking higher.”

Elsewhere, Primmer has positioned the BP portfolio for the next phase of the pandemic recovery, which is likely to be supportive of commodities and cyclical stocks tied to a rising yields outlook.

He trades in and out of gold, which currently comprises around 5-10% of the portfolio.

And along with precious metals, he’s transitioned the portfolio towards the commodity super-cycle encompassing base metals (such as copper) and bulk commodities (such as iron ore).

As a result, commodity exposure now comprises around 40-45% of the BP portfolio. And there’s a healthy allocation to financial stocks as well (around 20-25%).

“We hold some bank stocks for their exposure to rising interest rates and the yield they offer as the economy recovers. Clients still want some form of steady yield and I think banks are a pretty easy bet in that sense,” Primmer said.

Healthcare also gets a fairly strong allocation, at around 9% of the portfolio.

“Stocks like Resmed (ASX:RMD) and Ramsay Healthcare (ASX:RHC) — these are companies that will do well in the case of a market slowdown,” Primmer said.

Notably, high-growth tech stocks — the 2020 market darling — are out.

“I trade in and out of tech a bit, but I think there are more opportunities to make money in other sectors given how hot valuations have run there,” he said.

And lastly, as FY21 draws to a close Primmer is staying agile with a healthy cash weighting.

“We’re holding quite a bit of cash — about a quarter of the fund at the moment because it allows you to take advantage of opportunities and pick up opportunties as they come,” Primmer said.

“Broadly speaking, I’d be wary about being fully invested when markets are this high. I’m not saying it will come all the way off, but I like being ready with some extra cash in the event of a small contraction or some form of a correction.”

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.