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 were weaker in August as represented by the MSCI World Index which fell -2.2%.
Volatility was again the flavour of the month with the Volatility Index (VIX) rising to its highest level since January.
US equities dropped -1.8% as the US imposed 10% tariffs on the remaining $300bn of imports from China. Fears of a recession rose as the yield curve on 2 and 10-year Treasury notes inverted for the first time since 2007.
China was weaker falling -1.6% as the ongoing Trade War continues to negatively impact business sentiment. China responded to the US by halting purchases of US agricultural products.
UK equities were heavily hit falling -5% as UK PM Boris Johnson shut down Parliament in an attempt to block MPs from blocking a no-deal Brexit.
Locally, the ASX200 Accumulation Index was weaker, falling -2.4% as corporate earnings season got into full swing.
The RBA left the cash rate unchanged at 1% instead opting to wait for the Federal Reserve to meet next month before taking action.
Australian bond yields tightened further with 10-year Government bonds yielding 0.88% at August 31.
Oil was weaker during August with Brent oil falling -8% and WTI falling -5% to trade $59/barrel and $55/barrel respectively. Oil prices have now fallen -20% since a 2019 peak in April, hit by concerns the Trade War would erode demand.
The iron ore price experienced its biggest monthly drop in eight years falling -28% to US$86/tonne as shipments increased to China sparking supply pressures.
Contributors to performance were BWX (BWX) and Afterpay (APT) which added 50% and 16% respectively. Both companies reported full-year results to the market with BWX guiding to 30% EBITDA growth in 2020 whilst also relaunching its Mineral Fusion brand. Afterpay continues to grow reporting underlying sales figures of $5.2bn whilst adding 12,500 new customers per day, far exceeding analyst expectations.
Detractors were Boral (BLD) which fell -18% and IOOF (IFL) which fell -13%. Boral posted disappointing 2020 guidance flagging a -5% to -15% fall in earnings and its fly-ash acquisition Headwaters also missed earnings estimates. Whilst disappointing BLD trades on 11x earnings and generates ~$500m in free cash flow per annum so we believe it remains cheap at these levels. IFLs total funds under management reached $150bn so despite the selloff we believe business activity remains strong. The next catalyst for IFL will be an update on Federal Court proceedings and the ANZ OnePath deal.
The Growth SMA reduced BWX, added to IFL, exited our position in VAS and established a new position in Webjet (WEB) in August. The Diversified Income, Defensive Income and International Growth SMAs went 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 31 August 2019
SMA—MODEL PORTFOLIO PERFORMANCE FIGURES
As at 31 August 2019
What is a Separately Managed Account (SMA)?
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