Diversified Portfolios - InvestSMART Conservative - 31 August 2016
InvestSMART Conservative Portfolio August Report
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 equitiesreturned 2.7% for the month outperforming their developed market counterparts.
The InvestSMART Conservative Portfolio returned 0.2% over the month of August.Despite being overweight Australian equities which posted a negative return, theportfolio still managed to post a positive return relative to the benchmark. The maincontributors to performance were the overweight to emerging markets and creditwithin fixed interest.
Australian REITs and global REITs posted a negative return over the month, theportfolio's underweight to the sector contributed marginally to performance relativeto the benchmark. We believe that the REIT sector looks fully stretched and will belooking to reduce exposures further in the month of September.
Within fixed interest the portfolio's exposure to Australian government bondsreturned 0.5%, while the exposure to Macquarie Income Opportunities Fundoutperformed the broader bond market, returning 0.8%. Cash returned 0.2% for themonth, cash returns are expected to be lower in the coming months on the back ofthe 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 1% objective byaround 2.2%.
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 1% 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 14%.
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 investment objective is to achieve a return of 1% above the RBA Cash rate per annum 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.
|PERFORMANCE TO 31 AUGUST 2016||1 MONTH||3 MONTH||6 MONTH||1 YEAR||SI* (P.A.)|
|InvestSMART Conservative Portfolio||0.17%||1.57%||5.80%||5.07%||5.25%|
|Morningstar Multisector Moderate Index||0.02%||1.82%||5.36%||6.38%||5.58%|
|Excess to Benchmark||0.16%||-0.25%||0.43%||-1.31%||-0.33%|
|RBA Cash Rate 1%||0.21%||0.67%||1.42%||2.94%||3.05%|
|Excess to Objective||-0.04%||0.90%||4.38%||2.13%||2.20%|
Peformance Summary to 31 August 2016
Contribution to Return 1Month to 31 August 2016
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