Diversified Portfolios - InvestSMART Balanced - 31 October 2016
InvestSMART Balanced Portfolio October Report
Both Australian equities and international equities were down for the month ofOctober returning -2.2% and -1.4% respectively. The worst performing of the mainasset classes was A-REITs which returned -7.7% for the month.
The InvestSMART Balanced Portfolio returned -1.5% over the month of October whichwas ahead of benchmark. Despite being overweight Australian equities which posteda negative return, the portfolio still managed to post a positive return relative to thebenchmark. The main contributors to performance were the overweight to emergingmarkets and underweight to REITs as well as the exposure to floating rate bondswithin fixed interest.
Australian REITs and global REITs both posted a negative return over the month of -7.7% and -5.5% respectively. The portfolio's underweight to the sector contributed tothe performance relative to the benchmark. We continue to remain underweight thesector on the basis of valuations and sensitivity to interest rates.
Within fixed interest the portfolio's exposure to Australian government bondsreturned -1.6%, while the exposure to Macquarie Income Opportunities Fundoutperformed the broader bond market, returning 0.3%. Cash returned 0.2% for the month.
Since inception the portfolio is slightly behinf its cash 2% objective by around 0.4 after investment fees.
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 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 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 also underweight REITs. 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 OCTOBER 2016||1 MONTH||3 MONTH||6 MONTH||1 YEAR||SI* (P.A.)|
|InvestSMART Balanced Portfolio||-1.19%||-1.74%||2.17%||1.18%||3.61%|
|Morningstar Multisector Balanced Index||-1.45%||-1.89%||2.38%||2.46%||4.48%|
|Excess to Benchmark||0.27%||0.15%||-0.21%||-1.28%||-0.87%|
|RBA Cash Rate 2%||0.30%||0.88%||1.84%||3.88%||4.02%|
|Excess to Objective||-1.48%||-2.62%||0.33%||-2.70%||-0.41%|
Peformance Summary to 31 October 2016
Contribution to Return 1 Month to 31 October 2016
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