Active Stock Portfolio Updates - July 2019

The Equity Growth, Equity Income, Ethical Share Fund and Australian Small Companies Fund monthly updates are now available.


An update from Nathan Bell

Falling interest rates and increasing expectations for more aggressive action from the world’s central banks desperate to maintain economic growth and support stock markets continues as the dominant theme driving share markets. This short-term focus is bound to create problems longer term, which is why we’re not chasing the market by taking large risks in overvalued parts of the market.

The performance of our portfolios is a microcosm of broader market trends; mainly investors herding into stocks seemingly offering certainty and safety. Valuations for highly priced, high quality businesses like Resmed and Sydney Airport, continue to increase despite reporting average numbers by their lofty standards.

As we can’t expect price-to-earnings ratios to continue climbing indefinitely, we’re busy finding hidden gems like Frontier Digital Ventures and 360 Capital, which are slowly attracting increasing interest from investors, and fallen angels that can increase earnings substantially over the next five years but where investors are too focused on poor current operating trends.

Attractive income opportunities are declining by the day as interest rates fall, which is going to put untold pressure on people living off interest rate products such as term deposits. Given the large gap between interest rates and the dividend yield of our income portfolios at over 4% plus franking credits, we believe a portfolio with less well-known names such as Lovisa, 360 Capital and Smartgroup, in addition to high dividend-paying stalwarts like the big banks and BHP, which is flush with cash due to high iron ore prices, has a much better chance of outperforming the market over time while paying a growing stream of increasingly valuable dividends.

Unlike fixed interest rate products, our portfolios also provide inflation protection should risky monetary policies have unintended consequences in the years ahead.

 

Intelligent Investor Equity Growth Portfolio

  • Markets calmer due to Central bank moves in US and Australia
  • Central banks attempts at avoiding recessions at all cost have made great opportunities harder to find
  • Resmed and Frontier Digital Ventures have done well

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Intelligent Investor Equity Income Portfolio

  • Australian indexes have been up this year driven by a few major stocks due to investors chasing yield and high iron ore prices
  • Clydesdale bank doing poorly but has potential for return in the future
  • 'You can't have good news and cheap share prices'

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InvestSMART Australian Equity Income Fund (Managed Fund) (ASX:INIF)

  • House prices going up slightly - although potentially due to shortage of properties rather than a property boom
  • Portfolio holds companies that offer potential
  • Unibail Rodamco Westfield's flagship stores are performing well and it is attempting to rid itself of lower quality stores

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Intelligent Investor Australian Small Companies Fund

  • Four investments have reported results
  • MSL Solutions a let down with unproven management team
  • Investment case on track for Frontier Digital Ventures, which reported a strong performance

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InvestSMART Ethical Share Fund (Managed Fund) (ASX: INES)

  • Resmed results good, but not great
  • Frontier Digital Ventures doing well
  • Clydesdale Bank struggling, but has potential

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Disclaimer
Intelligent Investor provides general financial advice as an authorised representative under the AFSL held by InvestSMART Publishing Pty Limited (Licensee). InvestSMART Funds Management Limited (RE) is the responsible entity of various managed investment schemes and funds and is a related party of the Licensee. The RE may own, buy or sell the shares suggested in this article simultaneous with, or following the release of this article. Any such transaction could affect the price of the share.

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