Lithium & marijuana running away from crypto stocks as 2017 comes to a close

There's plenty of people out there at this time of year cutting the numbers on how various classifications of equities have performed during calendar 2017: Industrials compared to Resources; Small Caps relative to Large Caps; Value versus Growth; maybe Health v IT. What about those sectors that have had a real "Buzz" about them, relative to the market or even compared to each other?

What have been the buzz categories this year? Off the top of my head, I come up with Cannabis, Chinese demand for Aussie food brands, cryptocurrencies and lithium (if you've got others, let me know).

So how have these buzz stocks performed? Stocks associated with cryptocurrencies under-performed relative to other buzz categories - they only delivered a capital return of 140% in the first 11 months of the year.

Sure that looks great compared to the 10% capital gain for the S&P/ASX Small Industrials or the 24% gain for the S&P/ASX Small Resources. But its nothing compared to the 364% return from owning a basket of medical marijuana stocks, or the 327% from being long a portfolio of lithium plays.Even the China themed food brand stocks had returned 274% over 11 months.

Figure 1: relative returns of four "buzz" sectors on the ASX (equal-weighted portfolios)

source: Equitable Investors, Thomson Reuters, companies' data 

Just to provide a little perspective on how speculative these "buzz" stocks are, Figure 2 sets out the average revenue each company reported in FY17, compared to their current Enterprise Value (EV).

Figure 2: Average revenue & EV of stocks in each "buzz" category

 source: Equitable Investors, Thomson Reuters, companies' data 

There are some highly profitable businesses in their - certainly in the China portfolio featuring companies like a2 Milk (ASX code: A2M) and Synlait Milk (ASX code: SM1) and also among the lithium producers - but cannabis and cryptocurrency stocks in particular look like they have much to prove.

For the record, the Equitable Investors Dragonfly Fund currently has exposure to the China theme via a branded food stock and via food testing but not to the other buzzing themes highlighted.

We'll keep you in suspense regarding the final outcome in the race. Can lithium pip cannabis at the post? Can cryptocurrencies close the gap?

Note: these relative returns were created by measuring monthly percentage share price changes for portfolios of stocks associated with each of the "buzz" sectors. Each relative index reflects the average percentage changes of all stocks in each portfolio. We identified 15 cryptocurrency stocks, nine cannibis stocks, nine China stocks and 13 lithium stocks.

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