Portfolio update for April

After a rough March quarter, things settled down for the Intelligent Investor Growth and Equity Income portfolios in April, with returns of 1.1% and 1.8% (after costs) for the month, respectively, compared to 0.8% for the All Ordinaries Index.

The best performer was Flight Centre, which gained 9% as investors began to bet that airfare price deflation has begun to moderate. We bought the stock in January in spite of fears of another profit downgrade – which was promptly delivered with the company's interim result. But the share price was surprisingly resilient, which just goes to show that if people are anticipating a profit warning, then it shouldn't come as much of a shock.

It's also important to bear in mind that there are two sides to airfare price deflation – while it might dent profits in the short term, over the long term it has driven huge growth in international air travel and the demand for Flight Centre's services.

Contrarian approach

It's still very early days for this investment – and we're mindful that pride often comes before a fall in investing – but with an 18% gain so far it looks like a good advertisement for our contrarian approach.

There's nothing very contrarian, however, about April's next best performer, Seek, which gained 7% and now sits on an intimidating multiple of 29 times expected earnings for 2017. This is among the highest-quality companies on the ASX, though – in terms of its business, management and culture – and it's investing hard to increase those earnings. This is not a stock to let go easily and we're happy to ride along with a lofty valuation.

By contrast, another notable performer for our Equity Income Portfolio, ALE Property Group, isn't investing at all, because all that is taken care of by the tenant in its pubs – ALH Group, which is 75% owned by Woolworths. ALE stands to reap some of the benefit of this investment, all the same, due to a capped rent review in 2018 and a full market rent review in 2028. The stock gained 7% in April, and that brings its distribution yield down to an unfranked 4.3% – but we still think the market's underestimating its long-term value.

Telecoms take a dive

The worst performing stocks in the month were telecoms, where our investments comprise TPG Telecom in the Growth Portfolio and amaysim in both.

With TPG Telecom we're firmly back in the contrarian camp, with the stock losing 14% in April after announcing plans to build a mobile phone network. This will require a huge investment, necessitating a rights issue and smashing earnings for the next few years. The market took a typically myopic view by slashing its share price, but TPG has been built on big, bold investments, and we're happy to back its highly regarded management to do it again.

We're taking up our entitlement in the rights issue and – with our initial purchase of 3% in December (now 2.6%) representing just a ‘toe in the water' – we will be on the lookout for further opportunities to build our stake.

TPG's plans also put pressure on amaysim, although some uncertainty has also been introduced by the company's own decision to branch out into electricity retailing through the acquisition of Click. We're cautious about this new direction, but still see considerable value in its fast-growing subscriber base, which recently pushed past 1 million.

Our Growth Portfolio has now returned 10.8% (after costs) so far this financial year – 5.0% behind the All Ords' return of 15.8%. Since it began accepting investments in July 2015 it has returned 12.6% pa (after costs), 3.1% ahead of the All Ords' return of 9.5% pa; and, since it was established as a model portfolio in July 2001, it has returned 10.2% pa (after costs*) compared to 8.9% pa for the All Ords.

Our Equity Income Portfolio has returned 16.3% (after costs) so far this financial year – 0.6% ahead of the All Ords' return of 15.8%; since it began accepting investments in July 2015 it has returned 15.2% pa (after costs), 5.7% ahead of the All Ords' return of 9.5% pa; and, since it was established as a model portfolio in July 2001, it has returned 13.2% pa (after costs*) compared to 8.9% pa for the All Ords.

*We have deducted notional costs for the period from July 2001 to July 2015 of 0.97% pa, matching the costs since the portfolio became a real money portfolio.

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Disclosure: The author owns shares in Seek and amaysim.