Diversified Portfolios - InvestSMART High Growth - 31 January 2017
After a strong December, markets generally retreated in the month of January with Australian equities returning -0.8% for the month and international equities returning -2.4%.
The InvestSMART High Growth Portfolio returned -1.3% over the month of January. The overweight to Australian equities dragged on the portfolio slightly as markets were down but the underweight to the US and overweights to Emerging Markets and Europe contributed positively.
Australian REITs posted a negative return over the month of -4.7% which was a continuation of the trend we saw in the latter half of last year as investors inflation expectations have risen, bond proxies such as REITs have been impacted. This sensitivity to interest rates is why the portfolio is underweight REITs.
Within fixed interest the portfolio's exposure to Australian government bonds returned 0.6% for the month as did the exposure to Macquarie Income Opportunities Fund. It is worth noting that the exposure to the Macquarie Income Opportunities Fund has returned 5.2% over the past year compared to 2.2% for the broader Australian bond market and relative to cash which returned 2.0% for the year. Overall the Macquarie Income Opportunities Fund has been a positive contributor not only in terms of return but also in risk-adjusted terms in that it has generally been less volatile than bonds.
Since inception the portfolio is slightly behind its cash 4% objective by around 1.4% after investment fees.
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. The portfolio is also underweight REITs. The portfolio is expected to do well in an environment where Australian equities outperform other asset classes. 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 4% objective is achievable over the long-term but only through a very high allocation to relatively volatile equity investments. This means that investors should be comfortable with a high degree of volatility, which could result in a short-term fall in the portfolio's value of around 28%.
Growth of $10,000
Asset Allocation as at 31 JANUARY 2017
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 24 October 2014.
|PERFORMANCE TO 31 JANUARY 2017||1 MONTH||3 MONTH||6 MONTH||1 YEAR||SI* (P.A.)|
|InvestSMART High Growth Portfolio||-1.32%||5.03%||2.39%||12.00%||7.46%|
|Morningstar Multisector Agressive Index||-1.52%||5.41%||2.62%||11.33%||9.15%|
|Excess to Benchmark||0.20%||-0.38%||-0.23%||0.67%||-1.69%|
|RBA Cash Rate 4%||0.46%||1.38%||2.77%||5.79%||6.05%|
|Excess to Objective||-1.78%||-3.66%||-0.38%||6.21%||1.41%|
Performance Summary to 31 January 2017
The investment objective is to achieve a return of 4% above the RBA Cash rate per annum over ten 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 31 January
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