Diversified Portfolios - InvestSMART High Growth - 31 August 2016
InvestSMART High Growth 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 equities returned 2.7% for the month outperforming their developed market counterparts.
The InvestSMART High Growth Portfolio returned 0.0% over the month of August. Despite being overweight Australian equities which posted a negative return, the portfolio still managed to post a return above 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 the 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 4% objective by around 2.3%.
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. The portfolio is expected to do wellin an environment where Australian equities outperform other asset classes. Withininternational equities the portfolios have a bias towards emerging markets and anunderweight to US equities, therefore the portfolio will benefit when US equitiesunderperform broader equity markets and emerging markets do well.
Current market pricing implies that the portfolio's RBA Cash Rate 4% objective isachievable over the long-term but only through a very high allocation to relativelyvolatile equity investments. This means that investors should be comfortable with ahigh degree of volatility, which could result in a short-term fall in the portfolio's valueof around 28%.
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 24 October 2014.
The investment objective is to achieve a return of 4% above the RBA Cash rate per annum over rolling ten year 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 High Growth Portfolio||4.28%||5.26%||9.69%||0.72%||8.87%|
|Morningstar Multisector Agressive Index||3.67%||5.41%||8.48%||1.66%||10.30%|
|Excess to Benchmark||0.61%||-0.15%||1.21%||-0.94%||-1.43%|
|RBA Cash Rate 4%||0.48%||1.44%||2.93%||6.05%||6.18%|
|Excess to Objective||3.80%||3.81%||6.76%||-5.34%||2.69%|
Performance Summary to 31 August 2016
Contribution to Return 1 Month to 31 August 2016
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