Equity markets enjoyed a post-Brexit rally during July with Australian equities up 6.4% while international equity markets were up a more modest 2.0%. Emerging market equities returned 2.9% for the month outperforming their developed market counterparts. The portfolio is biased towards Australian equities and emerging market equities so the strong performance in those markets had a positive impact on the performance of the portfolio.
The InvestSMART Balanced Portfolio returned 2.9% over the month of July. The Australian equity exposure returned 6.4% for the month, while the international equity component returned 3.9% versus 2.0% for the market. The exposure to emerging markets and US mid-caps contributed positively within international equities.
The portfolio's exposure to Australian REITs contributed positively to the portfolio over the month with local REITs continuing to post strong gains, up 5.3% over the month. The global property exposure was up 2.4%. We continue to monitor our exposure to the REIT sector as we believe valuations look stretched.
Within fixed interest the portfolio's exposure to Australian government bonds returned 0.6%, while the exposure to Macquarie Income Opportunities Fund outperformed the broader bond market, returning 1.1%. 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%.
Since inception the portfolio continues to track ahead of its cash 2% objective by around 1.9%.
The investment objective is to achieve a return of 2% above the RBA Cash rate per annum over five year rolling periods by investing in a diverse mix of asset classes covering Australian equities, international equities, property, infrastructure, alternatives, fixed interest and cash.
Growth of $10,000
Asset Allocation as at 31 JULY 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 valuations 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. Within international equities the portfolios have a bias towards emerging markets and an underweight to US equities, therefore the portfolio will benefit when US equities underperform broader equity markets and emerging markets do well.
Current market pricing implies that the portfolio's RBA Cash Rate 2% objective is achievable over the long-term but only through a reasonable allocation to relatively volatile equity investments. This means that investors should be comfortable with above average volatility, which could result in a short-term fall in the portfolio's value of around 20%.
|PERFORMANCE TO 31 JULY 2016||1 MONTH||3 MONTH||6 MONTH||1 YEAR||SI* (P.A.)|
|InvestSMART Balanced Portfolio||2.88%||4.13%||7.30%||2.29%||6.00%|
|Morningstar Multisector Balanced Index||2.43%||4.34%||6.79%||3.89%||6.53%|
|Excess to Benchmark||0.45%||-0.22%||0.51%||-1.60%||-0.54%|
|RBA Cash Rate 2%||0.32%||0.95%||1.94%||4.01%||4.09%|
|Excess to Objective||2.56%||3.18%||5.36%||-1.72%||1.90%|
Peformance Summary to 31 July 2016
Contribution to Return 1 Month to 31 July 2016
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