australian shares core...
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Australian Shares Core PortfolioQuarterly Performance Update: Q1 2016
Returns Relative to Benchmark
As of Date: 31/03/2016
3 month YTD 1 year 3 years 5 years Since Incp % p.a.
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
-3.6 -3.6
-12.9
2.14.5
7.0
-2.7 -2.7
-9.6
5.4 5.77.8
Australian Shares - Core S&P/ASX 200 TR AUD
Retu
rn
Investment Growth of $10,000
Time Period: 01/07/2004 to 31/03/2016
10,000.0
12,500.0
15,000.0
17,500.0
20,000.0
22,500.0
25,000.0
27,500.0
Australian Shares - Core S&P/ASX 200 TR AUD
Top Holdings
Weighting %
Cash Account
Australia and New Zealand Banking Group Ltd
Westpac Banking Corp
ResMed Inc DR
BHP Billiton Ltd
National Australia Bank Ltd
Westfield Corp
QBE Insurance Group Ltd
Woolworths Ltd
Platinum Asset Management Ltd
9.1
7.1
7.1
5.8
5.1
5.1
4.9
4.5
4.0
3.7
Joel BloomerHead of Discretionary Equities+612 9276 [email protected]
Market Commentary
The Australian equity market rotated heavily back to commodities, continued to lose faith in the big banks, and increased exposure to listed property. After several years of resource stock price declines, commodities finally bounced spurred at least partly by fading concern over the Chinese economy. While we’re long-term China bulls (and believers in “the Asian Century”), we’re sceptical that renewed credit growth on top of already torridly expanded financial leverage is the best remedy for a slowing economy. Coupled with stubbornly slow global growth, it may be too soon to say resources are completely out of the woods, but the first quarter provided some respite.
Shares of the big four banks are more heavily incorporating the various industry headwinds that they face. Bad debts have bottomed, provisions are thin, regulatory capital requirements are on the rise, and the residential market is showing signs of age. Earnings per share growth from the big four seems increasingly out of reach with a flat per share bottom-line feeling like a decent outcome. Payout ratios are already stretched and dividends are justifiably in doubt, with growth off the table and some reduction becoming a reasonable base case forecast. We’d suggest this is the scenario priced into bank shares - a muddle along few years where moderately dilutive capital raises plug holes in the balance sheet, weighing on total shareholder returns. Australian banks are more competitively advantaged than most, and will continue pulling levers their oligopoly allows, but the headwinds have become stiff and margin for error compressed.
Listed property is the sector that seemingly can’t lose, slightly outpacing resources in an odd combination of both defensive and cyclical strength. Property firms on the whole remain modestly geared, particularly relative to global financial crisis levels, and benefit from long-lease terms, cap rate compression in a slow growth environment, and generally stable cash flows, making them the haven of choice.
How the Portfolio PerformedThe Core Portfolio returned -3.6% compared to -2.7% for the S&P/ASX 200 total return index in the March quarter. In the trailing year, the portfolio has returned -12.9% versus the benchmark’s -9.6%. Banks were the most negative contributor to performance in the quarter (-2.8% of the -3.6% total) with ANZ Bank constituting half of that, more than offsetting positive contributions from property and materials.
Our recently increased property exposure performed exceptionally well in a short amount of time, as did our materials investments, the latter having switched from headwind to tailwind. The portfolio was also somewhat stabilised by a higher than usual cash holding, which we maintain given economic uncertainty, and what we view as generally crowded quality trades. However, this was not enough to compensate for exposure to banks. Financials in general were unkind to us in the quarter, as QBE Insurance and Platinum Asset Management also detracted.
Recent purchases of Vicinity Centres and Dexus Property Group in January of this year were well-timed, although primarily driven by valuation analysis. We felt market concerns were wrongly punishing these high quality firms, particularly given their attractive dividend yields in this growth-constrained, low interest rate environment. Property is not riskless of course, but we see it as a reasonable exposure when moderately priced safe dividend yields are in short supply. We also received noteworthy positive contributions from Alumina and Iluka as the materials sector rebounded sharply.
On the other side of the ledger were ANZ Bank and Platinum. ANZ has been punished even more than its banking brethren due to Asian exposure and seemingly persistent signs that its culture is less than ideal, evidenced by accelerating loan losses (indicative of subpar underwriting) and other indiscretions. Past poor decisions have rendered a dividend cut likely which is at least partially reflected in the abnormally high yield.
Platinum’s share price woes are also self-inflicted but of a different nature, reflecting an extended period of underperformance in their flagship strategy compounded by acute weakness in Asian equity markets, one of the firm’s preferred playgrounds. Being underweight the U.S. market has proven to be a very early move – which thus far is indistinguishable from unwise. Still, we’re inclined to agree that the U.S. market is somewhat frothy, and either way, think these matters will average out over time.
OutlookWe suggest that one of the most important metrics in Australia today is the future path of bank earnings per share, with emphasis on ‘per share’. If the resources sector bad debt fall-out intensifies, spreads to other corporate sectors, or if theresidential market continues to waver, bank EPS will suffer. If dividends prove unsustainable because of increased share counts or falling earnings, bank stock prices may fall further. The big four are in the unique position of being both a symptom and cause of prosperity or otherwise, as their size and scope touch most aspects of the economy. This is particularly true considering their substantial equity index weights and dividend payments. From this point forward, we’ll learn whether the banks are in fact quality companies that can weather the storm as well as they rode the tide. We remain overweight healthcare and property with cash on the sideline, awaiting greater margins of safety.
THIS REPORT HAS BEEN PRODUCED USING PRESENTATION STUDIO, A MODULE OF MORNINGSTAR DIRECTThis document is issued by Morningstar Investment Management Limited (ABN 54 071 808 501, AFS Licence No. 228986) (trading as ‘Ibbotson’ or 'Ibbotson Associates'). Ibbotson is a member of the Morningstar group of companies (‘Morningstar’). © Copyright of this document is owned by Ibbotson and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Ibbotson. The information provided is for general use only. In compiling this document, Ibbotson has relied on information and data supplied by Morningstar and other third party information providers. Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Ibbotson, Morningstar nor their third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Past performance is not a reliable indicator of future performance. Neither Ibbotson nor Morningstar guarantees the performance of any investment or the return of capital. Ibbotson warns that (a) Ibbotson has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Distribution Team on 02 9276 4550.
Australian Shares - Core As of 31/03/2016
Relative Weights
Health Care Equipment and Services
Commercial Services and Supplies
Food and Staples Retailing
Retailing
Real Estate
Software and Services
Diversified Financials
Consumer Services
Automobiles and Components
Pharmaceuticals and Biotechnology
Consumer Durables and Apparel
Household and Personal Products
Capital Goods
Insurance
Media
Food, Beverage and Tobacco
Materials
Telecommunication Services
Utilities
Transportation
Energy
Banks
-10.9 -6.7 -2.6 1.6 5.8 10.0
5.6
5.3
2.7
2.2
2.2
2.0
0.7
0.3
-0.1
-0.1
-0.1
-0.2
-0.4
-0.4
-0.8
-1.2
-1.7
-2.2
-2.4
-2.9
-4.0
-9.4
Transactions in the Quarter
CYB-AU CYBG PLC (Clydesdale Bank) RemovedDXS-AUQUB-AU
Dexus Property GroupQube Holdings Limited
AddedIncreased
OFX-AU OzForex Group AddedVCX-AU Vicinity Centres AddedVED-AU Veda Group RemovedWES-AU Wesfarmers Limited Decreased
Equity Sectors (GICS)
Portfolio Date: 31/03/2016
%Materials 12.0Industrials 6.3Healthcare 13.0Consumer Discretionary 7.3Consumer Staples 8.2Financials 46.6Information Technology 3.1Telecom Services 3.5Total 100.0
Equity Region Exposure
Portfolio Date: 31/03/2016
%Australia 90.1New Zealand 3.6United States 6.3Total 100.0
Asset Allocation
Portfolio Date: 31/03/2016
%
Stock 90.9
Cash 9.1
Total 100.0
THIS REPORT HAS BEEN PRODUCED USING PRESENTATION STUDIO, A MODULE OF MORNINGSTAR DIRECTThis document is issued by Morningstar Investment Management Limited (ABN 54 071 808 501, AFS Licence No. 228986) (trading as ‘Ibbotson’ or 'Ibbotson Associates'). Ibbotson is a member of the Morningstar group of companies (‘Morningstar’). © Copyright of this document is owned by Ibbotson and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Ibbotson. The information provided is for general use only. In compiling this document, Ibbotson has relied on information and data supplied by Morningstar and other third party information providers. Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Ibbotson, Morningstar nor their third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Past performance is not a reliable indicator of future performance. Neither Ibbotson nor Morningstar guarantees the performance of any investment or the return of capital. Ibbotson warns that (a) Ibbotson has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Distribution Team on 02 9276 4550.
Australian Shares - Core As of 31/03/2016
Risk-Reward
Time Period: 01/07/2012 to 31/03/2016
Std Dev
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Australian Shares - Core Australia OE Equity Australia Large Blend
Retu
rn
Multiple Investment Sector Exposure Chart
Portfolio Date: 31/03/2016
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0
Basic Materials
Consumer Cyclical
Financial Services
Real Estate
Consumer Defensive
Healthcare
Utilities
Communication Services
Energy
Industrials
Technology
Australian Shares - Core S&P/ASX 200 TR AUD
Performance Relative to Peer Group
Peer Group (5-95%): Open End Funds - Australia - Equity Australia Large Blend
Top Quartile 2nd Quartile 3rd Quartile Bottom Quartile
-20.0
-15.0
-10.0
-5.0
0.0
3 Month CYTD 1 year 2 Years Since Incp %p.a
5.0
10.0
Australian Shares - Core S&P/ASX 200 TR AUD
Retu
rn
Market Performance
Time Period: Since Inception to 31/03/2016
Inv Bmk1
Up Period Percent
Down Period Percent
Best Month
Worst Month
Best Quarter
Worst Quarter
63.12
36.88
7.98
60.28
39.72
-12.61
9.14
-12.71
23.25
-16.08
21.50
-18.25
Risk
Time Period: Since Inception to 31/03/2016
Inv Bmk1
Return % pa
Std Dev
Max Drawdown
7.04 7.82
13.7413.88
-48.58 -47.18
Core Portfolio - Complete List of Holdings
Portfolio Date: 31/03/2016
CodeStyle Box
TotalRet 3Mo
(Qtr-End)
PortfolioWeight
%
Cash AccountAustralia and New Zealand Banking Group LtdWestpac Banking CorpResMed Inc DRBHP Billiton LtdNational Australia Bank LtdWestfield CorpQBE Insurance Group LtdWoolworths LtdPlatinum Asset Management LtdCSL LtdBrambles LtdWesfarmers LtdGoodman GroupCrown Resorts LtdTrade Me Group LtdTelstra Corp LtdAlumina LtdComputershare LtdIluka Resources LtdAnsell LtdVicinity CentresDexus Property GroupOzforex Group ltdQube Holdings Ltd
9.1ANZ Ç 7.1WBC Ç 7.1RMD Ì 5.8BHP Ç 5.1NAB Ç 5.1WFD È 4.9QBE È 4.5
WOW Ç 4.0PTM Ì 3.7CSL É 3.7BXB É 3.6WES É 3.5GMG É 3.4CWN É 3.4TME Ë 3.2TLS È 3.2
AWC Ì 3.1CPU Ë 2.8ILU Ì 2.7
ANN Ë 2.3VCX È 2.3DXS Ç 2.2OFX Ï 2.1QUB Ë 2.1
6.88
-16.00
-7.23
-3.89
-9.94
-9.56
0.58
-0.13
-2.57
-9.95
-1.04
2.746.38
11.44-13.8715.61
6.14
2.89
-18.58
3.55
13.935.87
-38.411.51
-18.01
THIS REPORT HAS BEEN PRODUCED USING PRESENTATION STUDIO, A MODULE OF MORNINGSTAR DIRECTThis document is issued by Morningstar Investment Management Limited (ABN 54 071 808 501, AFS Licence No. 228986) (trading as ‘Ibbotson’ or 'Ibbotson Associates'). Ibbotson is a member of the Morningstar group of companies (‘Morningstar’). © Copyright of this document is owned by Ibbotson and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Ibbotson. The information provided is for general use only. In compiling this document, Ibbotson has relied on information and data supplied by Morningstar and other third party information providers. Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Ibbotson, Morningstar nor their third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Past performance is not a reliable indicator of future performance. Neither Ibbotson nor Morningstar guarantees the performance of any investment or the return of capital. Ibbotson warns that (a) Ibbotson has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Distribution Team on 02 9276 4550.
Australian Shares - Core As of 31/03/2016
THIS REPORT HAS BEEN PRODUCED USING PRESENTATION STUDIO, A MODULE OF MORNINGSTAR DIRECTThis document is issued by Morningstar Investment Management Limited (ABN 54 071 808 501, AFS Licence No. 228986) (trading as ‘Ibbotson’ or 'Ibbotson Associates'). Ibbotson is a member of the Morningstar group of companies (‘Morningstar’). © Copyright of this document is owned by Ibbotson and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Ibbotson. The information provided is for general use only. In compiling this document, Ibbotson has relied on information and data supplied by Morningstar and other third party information providers. Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Ibbotson, Morningstar nor their third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Past performance is not a reliable indicator of future performance. Neither Ibbotson nor Morningstar guarantees the performance of any investment or the return of capital. Ibbotson warns that (a) Ibbotson has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Distribution Team on 02 9276 4550.