Diversified Portfolios - InvestSMART Conservative - 30 June 2016
The big news in markets for the month of June centred around the UK's decision toleave the European Union, this generally impacted equity markets negatively but hada positive impact on bond prices as investors flocked to the safety that these assetspurportedly provide. This impacted the portfolio negatively over the month as theportfolio is overweight Australian equities and within international equities tends tohave a bias towards Europe due to the portfolio’s underweight to the US.
The InvestSMART Conservative Portfolio returned -0.6% over the month of June. TheAustralian equity exposure returned -2.4% for the month, while the internationalequity exposure was impacted by the bias to Europe which was down around 9%versus the broader market return of -3.8%. Positively, the allocation in emergingmarkets (which were broadly flat) had a positive impact on the portfolio, mitigatingsome of the fall in European exposures.
The portfolio's exposure to Australian REITs contributed positively to the portfolioover the month with local REITs up 3.8% over the month. It is apparent that A-REITsare being supported by a low interest rate environment and investors desire for yield.From this perspective we believe that valuations in the REIT sector appear stretchedand may look to trim the exposure in coming months. The global property exposurewas broadly flat, which would have been positive had it not been mainly impacted bythe currency.
Within fixed interest the portfolios exposure to Australian government bondsperformed well returning 1.4%, while the exposure to Macquarie Income OpportunitiesFund lagged the broader bond market, returning 0.1%.
Since inception the portfolio continues to track ahead of its cash 1% objective by around 1.2%.
The InvestSMART Diversified Income portfolio returned 1.6% over the month of April, outperforming the benchmark by 0.6% and the RBA Cash Rate 1% objective by 1.3%. The significant weighting to Australian equities and Australian listed property were the key contributors to the performance of the portfolio.
The portfolio continues to hold a significant weight to Australian equities given its high yielding characteristics relative to other asset classes as well as what we believe to be reasonably attractive valuations. Taking into account the additional benefit of franking credits, holding Australian equities as part of an overall income portfolio allows investors to generate a higher level of income than they would from more traditional sources of income, such as fixed interest and cash, especially in a low interest rate environment. However, investors need to accept that there will be higher levels of volatility than what a traditional "income" portfolio may have had in the past.
Within the InvestSMART Diversified Income portfolio the Australian equity exposure via the MSCI Australia 200 ETF returned 4.0% over the month which was the single biggest contibutor to performance in the portfolio. The Vanguard Australian Property Securities ETF posted a positive return for the month of 2.8%.
Within fixed interest, the iShares Composite Bond ETF returned 0.1%, while the Macquarie Income Opportunities Fund returned 1.0%. The BetaShares Australian High Interest Cash ETF returned 0.2% over the month.
Growth of $10,000
Asset Allocation as at 30 JUNE 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 1% 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 13%.
|PERFORMANCE TO 30 JUNE 2016||1 MONTH||3 MONTH||6 MONTH||1 YEAR||SI* (P.A.)|
|InvestSMART Conservative Portfolio||-0.63%||2.34%||1.87%||2.97%||4.33%|
|Morningstar Multisector Moderate Index||0.16%||2.88%||3.58%||5.57%||5.16%|
|Excess to Benchmark||-0.79%||-0.54%||-1.70%||2.60%||-0.83%|
|RBA Cash Rate 1%||0.23%||0.71%||1.46%||3.01%||3.09%|
|Excess to Objective||-0.86%||1.63%||0.41%||-0.03%||1.24%|
Peformance Summary to 30 June 2016
The investment objective is to maximise annual income while minimising capital losses over three year rolling periods by investing in a diverse mix of asset classes covering Australian equities, international equities, property, infrastructure, alternatives, fixed interest and cash.
Contribution to Return 1 Month to 30 June 2016
While every care has been taken in preparation of this document, InvestSMART Financial Services Limited (ABN 70 089 038 531, AFSL 226435) (“InvestSMART”) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and see professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. This document has been prepared for InvestSMART by InvestSense Pty Ltd ABN 31 601 876 528, Authorised Representative of Sentry Asset Management Pty Ltd AFSL 408 800. Financial commentary contained within this report is provided by InvestSense Pty Ltd. The information contained in this document is not intended to be a definitive statement on the subject matter nor an endorsement that this model portfolio is appropriate for you and should not be relied upon in making a decision to invest in this product. The information in this report is general information only and does not take into account your individual objectives, financial situation, needs or circumstances. No representations or warranties express or implied, are made as to the accuracy or completeness of the information, opinions and conclusions contained in this report. In preparing this report, InvestSMART and InvestSense Pty Ltd has relied upon and assumed, without independent verification, the accuracy and completeness of all information available to us. To the maximum extent permitted by law, neither InvestSMART, InvestSense Pty Ltd or their directors, employees or agents accept any liability for any loss arising in relation to this report. The suitability of the investment product to your needs depends on your individual circumstances and objectives and should be discussed with your Adviser. Potential investors must read the PDS, Approved Product List and FSG along with any accompanying materials. Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income, but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor. Past performance of financial products is not a reliable indicator of future performance. InvestSense Pty Ltd does not assure nor guarantee the performance of any financial products offered. Information, opinions, historical performance, calculations or assessments of performance of financial products or markets rely on assumptions about tax, reinvestment, market performance, liquidity and other factors that will be important and may fluctuate over time. InvestSense Pty Ltd, InvestSMART Financial Services Limited, its associates and their respective directors and other staff each declare that they may, from time to time, hold interests in Securities that are contained in this investment product.