Last financial year was a prime example of a rising tide floating all boats, but Merchant Group founder Andrew Chapman warns inclement conditions this year could see many ships running aground.

And although markets remain “buoyant”, that buoyancy is confined to select companies rather than broader sector- or industry-based trends, Mr Chapman said.

Speaking to Reach Markets, Mr Chapman said FY20 was a great year for investors, with most companies benefiting from broad gains on markets.

“You could throw a dart at a board and make money last year,” he said.

This year, however, Mr Chapman cautioned “things are a little more challenging, a little more difficult” and investors will need to be more careful in which companies they choose to back.

“This year you can see in the market now that it’s not all sectors. It’s a buoyant market, that’s for sure, and there’s certainly a lot of money flowing into the blue chips and eventually that trickles down to the small and mid caps, but it’s pretty specific,” he said.

“What I mean by that is that within certain sectors you’ve got certain companies doing well, this rising tide is not floating all boats – it’s the opposite of last year.” 

Mr Chapman used gold miners as an example, noting that while Chalice Mining has excelled this year, some of its peers, including Northern Star, have struggled. 

Ultimately, he said, prices are being driven by events rather than broader, sector-based factors, and investors will need to be smart about how they use their capital to generate returns.

“It’s a real stockpicker’s market; you’ve got to be more selective,” he said.

“The cream will rise to the top through all cycles.”

Join Andrew Chapman this Friday, 19th November, at 12pm (AEDT) on our weekly The Insider: Meet the Fund Manager webcast to hear him talk about his favourite stocks, investment strategy, market insights and more. There will also be an opportunity to ask questions during the session. To book yourself in, click here.