To achieve capital growth with moderate tax-effective income via franked dividends through investment in listed Australian securities.
The Model Portfolio is managed by selecting primarily those securities with moderate growth potential but robust cash-generating capacity. These securities are expected to deliver an above-market average income yield, together with a relatively moderate level of capital growth. The portfolio benchmark is the S&P/ASX200 Accumulation Index.
Portfolio Commentary & Positioning
Global equity markets continued their charge higher in February with the MSCI World Index rallying another 5.5%
Global risk sentiment improved on the back of increased optimism a trade deal between the US and China would emerge as the deadline for additional tariffs was extended.
The US equity market added 3% driven by trade talks and a solid Q4 corporate reporting season. More than half of companies that reported exceeded expectations with Apple and Netflix both extending their previous month’s gains.
The USD was stronger against a basket of currencies with the AUD buying 71c at the end of February.
US bond yields snapped a 3 month losing streak rising as risk appetite picked up. US 10 year Treasury yields added 9bps to yield 2.72%
Asian equity markets tracked higher and China soared 13.8% following a possible resolution to the trade dispute. Interestingly Morgan Stanley Capital International (MSCI) announced it will quadruple its weighting of Chinese mainland shares in its global benchmarks which could add $80bn of foreign inflows to the Chinese economy.
The Australian equity market was stronger with the ASX200 Accumulation Index rising 5.98%.
Oil continues to climb higher with Brent rising 8.5% to $66/barrel and WTI to $57/barrel (+6%.)
Australian reporting season was a shade weak with one quarter of companies exceeding expectations and one third disappointing.
Rising cost pressures and stagnant wage growth continue to impact consumer spending which ultimately impacted performance.
Contributors to performance in January were BWX (BWX) and IOOF (IFL) +54% and +30%. BWX responded to recent downgrades reporting $7m in 1H EBITDA but more importantly looks more likely to achieve its revised $28m full year earnings number. On <14x FY20 earnings numbers we continue to think the market has oversold BWX. IFL which had also been heavily sold off following APRAs move to disqualify five executives outperformed the market posting 6% growth in net profit and strong growth in its funds under management and advice business.
The worst performer was Nufarm (NUF) which fell 16%. There was no exceptionally weak day for NUF, rather a steady decline over the course of the month. NUF has been sold-off due to a prolonged Australian drought and concerns around the use of Glyphosate more commonly known as Roundup. We think both these concerns are overplayed and believe there is a substantial opportunity in its development of Omega 3.
We were active in February exiting our position in MFG and trimming our holdings in AMC, APT, HSO and QUB in the Growth SMA. The Diversified Income SMA likewise booked profits in MFG and exited the holding while the Defensive and International SMAs remained unchanged. On a risk profile performance basis our 5-year numbers continue to perform well against their respective benchmarks.
RISK PROFILE PERFORMANCE FIGURES
AS AT 28 FEBRUARY 2019
*Annualised return. Portfolio inception date 03/07/2012
SMA—MODEL PORTFOLIO PERFORMANCE FIGURES
AS AT 28 FEBRUARY 2019
What is a Separately Managed Account (SMA)?
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