The big news in markets for the month of June centred around the UK's decision to leave the European Union, this generally impacted equity markets negatively but had a positive impact on bond prices as investors flocked to the safety that these assets purportedly provide. This impacted the portfolio negatively over the month as the portfolio is overweight Australian equities and within international equities tends to have a bias towards Europe due to the portfolio’s underweight to the US.
The InvestSMART High Growth Portfolio returned -2.7% over the month of June. The Australian equity exposure returned -2.4% for the month, while the international equity exposure was impacted by the bias to Europe which was down around 9%versus the broader market return of -3.8%. Positively, the allocation in emerging markets (which were broadly flat) had a positive impact on the portfolio, mitigating some of the fall in European exposures.
The portfolio's exposure to Australian REITs contributed positively to the portfolio over the month with local REITs up 3.8% over the month. It is apparent that A-REITs are being supported by a low interest rate environment and investors desire for yield. From this perspective we believe that valuations in the REIT sector appear stretched and may look to trim the exposure in coming months. The global property exposure was broadly flat, which would have been positive had it not been mainly impacted by the currency.
Within fixed interest the portfolios exposure to Australian government bonds performed well returning 1.4%, while the exposure to Macquarie Income Opportunities Fund lagged the broader bond market, returning 0.1%.
Since inception the portfolio continues to track ahead of its cash 4% objective by around 0.4%.
The portfolio remains overweight Australian equities on the basis that valuations appear reasonably compelling when compared to other asset classes and given the attractive yield characteristics of the asset class. The portfolio is expected to do well in an environment where Australian equities outperform other asset classes. Within international equities the portfolios have a bias towards emerging markets and an underweight to US equities, therefore the portfolio will benefit when US equities underperform broader equity markets and emerging markets do well.
Current market pricing implies that the portfolio's RBA Cash Rate 4% objective is achievable over the long-term but only through a very high allocation to relatively volatile equity investments. This means that investors should be comfortable with a high degree of volatility, which could result in a short-term fall in the portfolio's value of around 27%.
Growth of $10,000
Asset Allocation as at 30 JUNE 2016
Source: Praemium, RBA
Returns are before expenses and fees. Returns are shown as annualised if the period is over 1 year. * Since Inception (SI) date is 24 October 2014.
|PERFORMANCE TO 30 JUNE 2016||1 MONTH||3 MONTH||6 MONTH||1 YEAR||SI* (P.A.)|
|InvestSMART High Growth Portfolio||-2.65%||3.14%||0.53%||0.49%||6.62%|
|Morningstar Multisector Agressive Index||-2.27%||4.13%||1.13%||2.77%||8.49%|
|Excess to Benchmark||-0.38%||-1.00%||-0.60%||-2.29%||-1.87%|
|RBA Cash Rate 4%||0.47%||1.45%||2.96%||6.08%||6.20%|
|Excess to Objective||-3.12%||1.69%||-2.43%||-5.59%||0.41%|
Performance Summary to 30 June 2016
The investment objective is to achieve a return of 4% above the RBA Cash rate per annum over rolling ten year periods by investing in a diverse mix of asset classes covering Australian equities, international equities, property, infrastructure, alternatives, fixed interest and cash.
Contribution to Return 1 Month to 30 June
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