Diversified Portfolios - Intelligent Investor Equity Income - 31 October 2016

COMMENTARY

PORTFOLIO COMMENTARY

After a strong performance in the September quarter, it was heavy going for the Intelligent Investor Equity Income Portfolio in October, with a loss of 3.9% compared to the 2.2% loss for the All Ordinaries Accumulation Index.

The performance would have been worse, but for a 34% gain from PMP Ltd after it announced a merger with its rival IMPG. This was particularly welcome since our investment case for PMP has always been that it was mildly undervalued as it stood, but more so if it could participate in industry consolidation.

PMP added more than 1% to the portfolio’s value on its own, which more than offset losses from Trade Me Group, which lost 15% in October after setting an all-time high of $5.70 in September. Other stocks fell by more but, with Trade Me beginning the period as the portfolio’s largest holding, its fall knocked just over 1% from the overall value on its own.

Behind the fall was an announcement by Facebook that it had launched its Marketplace ‘no-frills’ forum for trading goods in the US, UK, Australia and New Zealand. The threat from Facebook is not to be taken lightly, but it has always been there – and we’re not much closer to knowing whether it will be successful. There are good reasons to think the frills that Trade Me offers – in terms of security, payments, logistics and feedback facilities – are often worth it.

The other big fallers for October were Ainsworth Game Technology, which fell 20% due to a profit warning, and OFX Group, which fell 18% due to fears of disruption from ‘blockchain’ technology, increased competition and a lack of volatility in the Australian dollar against the US dollar.

Other than PMP, there wasn’t much to offset these falls, with South32 the next best performer with a gain of 7% and Westpac behind that with a gain of 3.3%. During the month we purchased a new 3% holding in Crown Resorts, after its share price fell following the arrest of members of its staff in China, funded by the sale of our 2.8% holding in Hotel Property Investments.

GROWTH OF $10,000

Income Reinvested

PEFORMANCE SUMMARY TO 31 OCTOBER 2016

Source: Praemium, RBA. Returns are after fees and before expenses. Returns are shown as annualised if the period is over 1 year. * Since Inception (SI) date is 1 July 2015.

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