Diversified Portfolios - InvestSMART Balanced - 31 August 2016
After posting a strong 6.4% return in July the Australian equity market retraced 1.6% in August, while international equity markets were up 1.3%. Emerging market equities returned 2.7% for the month outperforming their developed market counterparts.
The InvestSMART Balanced Portfolio returned 0.2% over the month of August. Despite being overweight Australian equities which posted a negative return, the portfolio still managed to post a positive return relative to the benchmark. The main contributors to performance were the overweight to emerging markets and credit within fixed interest.
Australian REITs and global REITs posted a negative return over the month, the portfolio's underweight to the sector contributed marginally to performance relative to the benchmark. We believe that the REIT sector looks fully stretched and will be looking to reduce exposures further in the month of September.
Within fixed interest the portfolio's exposure to Australian government bonds returned 0.5%, while the exposure to Macquarie Income Opportunities Fund outperformed the broader bond market, returning 0.8%. Cash returned 0.2% for the month, cash returns are expected to be lower in the coming months on the back of the RBA reducing the official cash rate to 1.5% at the start of August.
Since inception the portfolio continues to track ahead of its cash 2% objective by around 1.7%.
The investment objective is to achieve a return of 2% above the RBA Cash rate perannum over five year rolling periods by investing in a diverse mix of asset classescovering Australian equities, international equities, property, infrastructure,alternatives, fixed interest and cash.
Growth of $10,000
Asset Allocation as at 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 29 December 2014.
The portfolio remains overweight Australian equities on the basis that valuationsappear reasonably compelling when compared to other asset classes and given theattractive yield characteristics of the asset class. Within fixed interest the portfolioholds Australian government bonds and has an exposure to Australian credit andoverseas securities. The portfolio is expected to do well in an environment whereAustralian equities outperform other asset classes and where credit outperformsgovernment bonds. Within international equities the portfolios have a bias towardsemerging markets and an underweight to US equities, therefore the portfolio willbenefit when US equities underperform broader equity markets and emergingmarkets do well.
Current market pricing implies that the portfolio's RBA Cash Rate 2% objective isachievable over the long-term but only through a reasonable allocation to relativelyvolatile equity investments. This means that investors should be comfortable withabove average volatility, which could result in a short-term fall in the portfolio's valueof around 20%.
|PERFORMANCE TO 31 AUGUST 2016||1 MONTH||3 MONTH||6 MONTH||1 YEAR||SI* (P.A.)|
|InvestSMART Balanced Portfolio||0.15%||1.59%||7.62%||5.70%||5.77%|
|Morningstar Multisector Balanced Index||-0.05%||1.65%||7.07%||6.35%||6.10%|
|Excess to Benchmark||0.20%||-0.06%||0.55%||-0.65%||-0.34%|
|RBA Cash Rate 2%||0.30%||0.92%||1.92%||3.97%||4.07%|
|Excess to Objective||-0.15%||0.66%||5.70%||1.74%||1.70%|
Peformance Summary to 30 June 2016
Contribution to Return 1 Month to 30 June 2016
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