A pleasing reporting season saw the Intelligent Investor Equity Income Portfolio return 2.9% in August compared to a loss of 1.3% for the All Ordinaries Index. The portfolio has now returned 20.0% since it started accepting money for investment in July last year, compared to 5.9% for the All Ords, and 13.7% a year since it began as a model portfolio in 2001, compared with 7.6% for the All Ords.
Leading the way was Ansell, which returned 18% in the month. Although the company reported a 14% fall in earnings per share, that was at the top end of the downgraded guidance issued in February. Management expects a return to growth this year and is considering selling off the company’s condoms business, to focus on the gloves and other protective equipment it sells to companies rather than consumers. That makes good sense and with an improving outlook we’re comfortable holders despite the 49% increase in the share price since we bought following February’s downgrade.
Computershare was another company that beat some downbeat expectations, returning 13% in the month despite an 8% fall in earnings per share. Management was talking up the prospects of its mortgage servicing businesses and talking down the threats from Blockchain and Brexit and the market evidently took some comfort. We take more comfort from the undemanding valuation – a price-earnings ratio of about 14 – and would consider increasing our holding if the price returned to below $9.
Virtus Health and Monash IVF, our two holdings in assisted reproduction services, also did well, gaining 9% and 5% respectively as their results showcased their growing cash flows – a hot commodity in the current low growth environment.
Trade Me, our biggest holding, produced a result that suggested it too will soon be returning to growth after a few years of heavy investment. After nudging up 3% in 2016, we expect earnings to rise by 10% or more in 2017 – so apparently does the market, which pushed the stock up 9% over the month.
Interestingly enough – when set against the likes of Ansell and Computershare, which beat low expectations – the portfolio’s worst performer in August was Sydney Airport, which fell 6% despite flagging an expected 22% increase in this year’s distributions. The fall, though, says more about how far the stock price has already flown (it is up 64% over the past two years), rather than any problems with its results, which continue to be excellent. There’s no doubt that any rise in interest rate expectations will hit Sydney Airport hard in the short term, but we continue to believe that its combination of income and reliable growth will serve it well over the long term.
Other notable fallers were GBST Holdings, which lost another 4% after missing its guidance, and Seek, which fell 4% as the market took a gloomy view of its early stage ventures.
There were no transactions in the month, but the day after it ended we took advantage of the weakness in banks to take our holding in Commonwealth Bank from 2.2% to 5.2% and our holding in Westpac from 2.3% to 3.8%. To make way for these purchases, we reduced our holdings in Trade Me (from 8.6% to 6.6%), ASX (from 7.3%to 6.3%) and Virtus Health (from 5.3% to 4.3%).
GROWTH OF $10,000
PEFORMANCE SUMMARY TO 31 AUGUST 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 31 AUGUST 2016||1 MONTH||3 MONTH||6 MONTH||1 year||SI* (P.A.)|
|Intelligent Investor Equity Income Portfolio||2.89%||5.69%||19.25%||24.98%||19.96%|
|ASX All Ordinaries Accumulation Index||-1.33%||2.49%||14.25%||10.72%||5.92%|
|Excess to Benchmark||4.22%||3.21%||5.00%||14.26%||14.04%|
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