It began with China and ended with Britain, and in the middle there was a fright about US interest rates. With all the excitement – and a trading range of 18% – it’s hard to believe that the All Ordinaries Index ended the 2015/16 year almost flat.
The sensitivity to interest rates gives a hint as to the market’s apparent resilience. When trouble looms, it sets back the timetable for interest rate rises and reassures investors, which is of course largely the point.
The alternative threat is deflation. An excess of that, though, and anyone with too much debt will quickly go bust – and governments round the world right now have too much debt. We’ve had a few rounds of money printing so far, but you ain’t seen nothing yet if deflation looks like settling in.
So we continue to believe that real assets – notably shares in strong cash-generative businesses – are the best place for long-term savings. The government’s debt is nominal (a fixed number of dollars), but its taxation receipts are real (floating along with economic performance) – so it’s a fair bet that it will ultimately favour the real assets. So it should, because they represent real investment in the economy.
While the All Ords only managed a 2.0% total return, though, this was dragged down by a lousy performance from the market’s biggest stocks, with the ASX 20 index registering a 7% loss, led by the big four banks. Since the ASX 20 contributes a little over half the All Ords, this means the rest of the index managed a gain of around 14%.
We haven’t seen much value in the market’s biggest stocks for some time, so our Growth Portfolio has been well positioned to benefit from this disparity, returning 13.2% in the year. Since it was set up in 2001, the portfolio has now returned 10.2% a year compared to the 7.6% return of the All Ords.
Trade Me and Sydney Airport were the biggest contributors to the positive performance in the financial year, combining excellent returns – 50% and 28%respectively – with decent portfolio weightings – 6.1% and 6.6% respectively at the start of the year. Trade Me’s weighting is now up to 7.7%, somewhat higher than our maximum recommended weighting of 6%.
We’re comfortable with that for the time being, but may look to take some profit if it rises much further. Note that our maximum recommended weightings are set with reasonably conservative investors in mind, and we won’t necessarily follow them in the portfolios.
We’ve already reduced our position in Sydney Airport – from about 8% to 5% at the time – and the stock has ended the year with a weighting of 5.0%. Again, we’re comfortable holding this high quality stock for the moment, but it’s not far below our$8 sell price and we’d likely take some further profit before it got there. Other shout outs go to Monash IVF (returning 48%), Fleetwood (34%), Virtus Health (35%), Hansen Technologies (27%), Seek (27%), Nanosonics (31%) and Washington H Soul Pattinson (24%).
On the other side of the ledger, Origin Energy has lost 33% and South32 lost 13%, while GBST and Computershare have lost 18% and 13% respectively. These losses were contained, though, by smaller starting position sizes (2.0%, 4.7%, 6.0% and 3.7%respectively) and top-ups in the case of GBST and Computershare (at $3.61 and $9.95 respectively).
GBST stock had recovered much of its ground before tumbling 24% at the end of the year following the UK’s decision to leave the European Union. With sterling falling 10%against the Australian dollar, GBST’s revenues in that currency – which amount to almost half its total – will take a similar hit on translation. The costs associated with those revenues, however, are also mostly in sterling, so we don’t see a structural problem. A slowdown in the UK economy may also delay some projects, but we expect the strong expected growth in the UK platform market to assert itself over time. The risks, however, have undoubtedly increased.
GROWTH OF $10,000
PEFORMANCE SUMMARY TO 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 1 July 2015.
|PERFORMANCE TO 30 JUNE 2016||1 MONTH||3 MONTH||6 MONTH||SI* (P.A.)|
|Intelligent Investor Growth Portfolio||-4.11%||3.62%||3.87%||13.15%|
|ASX All Ordinaries Accumulation Index||-2.28%||4.00%||1.55%||2.01%|
|Excess to Benchmark||-1.83%||-0.38%||2.31%||11.14%|
While every care has been taken in preparation of this document, InvestSMART Financial Services Limited (ABN 70 089 038 531, AFSL 226435) (“InvestSMART”) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and see professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. This document has been prepared for InvestSMART by InvestSense Pty Ltd ABN 31 601 876 528, Authorised Representative of Sentry Asset Management Pty Ltd AFSL 408 800. Financial commentary contained within this report is provided by InvestSense Pty Ltd. The information contained in this document is not intended to be a definitive statement on the subject matter nor an endorsement that this model portfolio is appropriate for you and should not be relied upon in making a decision to invest in this product. The information in this report is general information only and does not take into account your individual objectives, financial situation, needs or circumstances. No representations or warranties express or implied, are made as to the accuracy or completeness of the information, opinions and conclusions contained in this report. In preparing this report, InvestSMART and InvestSense Pty Ltd has relied upon and assumed, without independent verification, the accuracy and completeness of all information available to us. To the maximum extent permitted by law, neither InvestSMART, InvestSense Pty Ltd or their directors, employees or agents accept any liability for any loss arising in relation to this report. The suitability of the investment product to your needs depends on your individual circumstances and objectives and should be discussed with your Adviser. Potential investors must read the PDS, Approved Product List and FSG along with any accompanying materials. Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income, but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor. Past performance of financial products is not a reliable indicator of future performance. InvestSense Pty Ltd does not assure nor guarantee the performance of any financial products offered. Information, opinions, historical performance, calculations or assessments of performance of financial products or markets rely on assumptions about tax, reinvestment, market performance, liquidity and other factors that will be important and may fluctuate over time. InvestSense Pty Ltd, InvestSMART Financial Services Limited, its associates and their respective directors and other staff each declare that they may, from time to time, hold interests in Securities that are contained in this investment product.