Diversified Portfolios - Income - 29 February 2016
The volatility surrounding Australian and global equity markets experienced in December and January continued in the month of February. The local equity market was down 1.7% for the month, as were global equity markets. Emerging market equities were down 1.1%, performing better than their developed market counterparts.
Australian REITs were the standout performer over the month, returning 2.8% for February (as measured by the S&P/ASX 300 A-REIT Accumulation Index). Global property was relatively flat for the month, posting a return of 0.1% (as measured by the FTSE EPRA/NAREIT Developed REITs AUD Hedged NR Index).
Within fixed interest, Australian bonds posted a return of 1.0% over the month of February (as measured by the Bloomberg AusBond Composite Bond Index) while global bonds returned 1.1% (as measured by the Barclays Global Aggregate Bond Index AUD Hedged). Cash returned 0.2% over the month as measured by the Bloomberg AusBond Bank Bill Index.
The InvestSMART Diversified Income portfolio returned -0.1% over the month of February, underperforming the benchmark by 0.4% and the RBA Cash Rate 1%objective by 0.4%. The significant weighting to Australian equities dragged on the performance of the portfolio.
Despite recent equity market volatility the portfolio continues to hold a significant weight to Australian equities given its high yielding characteristics relative to other asset classes as well as what we believe to be reasonably attractive valuations. Taking into account the additional benefit of franking credits, holding Australian equities as part of an overall income portfolio allows investors to generate a higher level of income than they would from more traditional sources of income, such as fixed interest and cash, especially in a low interest rate environment. However, investors need to accept that there will be higher levels of volatility than what a traditional "income" portfolio may have had in the past.
Within the InvestSMART Diversified Income portfolio the Australian equity exposure via the MSCI Australia 200 ETF returned -1.9% over the month which was the single biggest detractor to performance in the portfolio. The Vanguard Australian Property Securities ETF posted a positive return for the month of 1.5%.
Within fixed interest, the iShares Composite Bond ETF returned 0.9%, while the Macquarie Income Opportunities Fund returned -0.3%. The BetaShares Australian High Interest Cash ETF returned 0.3% over the month.
Growth of $10,000
Asset Allocation as at 29 February 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 29 December 2014.
The portfolio continues to remain overweight Australian equities on the basis that valuations continue to appear reasonably compelling when compared to other asset classes and given the attractive yield characteristics of the asset class. Within fixed interest the portfolio holds Australian government bonds and has an exposure to Australian credit and overseas securities. The portfolio is expected to do well in an environment where Australian equities outperform other asset classes and where credit outperforms government bonds.
|PERFORMANCE TO 29 FEBRUARY 2016||1 MONTH||3 MONTH||6 MONTH||1 YEAR||SI* (P.A.)|
|InvestSMART Income Portfolio||-0.13%||0.02%||0.29%||-1.98%||1.81%|
|Morningstar Multisector Moderate Index||0.23%||0.15%||0.96%||0.70%||3.46%|
|Excess to Benchmark||-0.36%||-0.13%||-0.67%||-2.68%||-1.65%|
|RBA Cash Rate 1%||0.24%||0.75%||1.50%||3.10%||3.14%|
|Excess to Objective||-0.36%||-0.73%||-1.21%||-5.07%||-1.33%|
Peformance Summary to 29 FEBRUARY 2016
The InvestSMART Diversified Income portfolio returned -0.1% over the month of February, underperforming the benchmark by 0.4% and the RBA Cash Rate 1% objective by 0.4%. Since inception the InvestSMART Diversified Income portfolio is behind its benchmark by 1.65% and its cash-plus objective by 1.33%.
Peformance Summary to 29 February 2016
The investment objective is to maximise annual income while minimising capital losses over three year rolling 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 29 February 2016
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