Diversified Portfolios - InvestSMART Income - 30 September 2016

InvestSMART Income Portfolio September Report
By · 1 Oct 2016
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1 Oct 2016
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International equity markets were down for the month while Australian equities were up slightly. Over the quarter both international and Australian equities posted positive returns. There seems to be no shortage of issues that have the potential to impact markets in the short-term (US election, monetary policy from the US Fed, ECB and Japan, what's next for Brexit, European bank solvency). The real difficulty is ascertaining if or when any of these are a catalyst for anything more severe. We continue to remain focused on valuations of asset classes and their prospective returns with the view that should any of those short-term issues transpire into something more serious it is likely that the most over-valued asset classes are likely to be hit the hardest.

The InvestSMART Diversified Income portfolio returned -0.4% over the month of September and 2.0% over the quarter. The overweight to Australian equities and underweight to property contributed positively to portfolio performance. It is worth noting that the portfolio does not have any exposure to international equities, which benefited the portfolio this month but may cause some variance relative to the benchmark from one month to the next.

A-REITs posted their second month of negative returns with the portfolio's exposure down -4.3% in September. During September we reduced the portfolio's exposure to REITs by around 2% on the basis that we view valuations in the REIT sector at the more expensive end. While REITs continue to offer reasonably attractive yields with modest growth prospects we believe that asset classes such as REITs and infrastructure are being treated like bond-proxies and are likely to be more sensitive to interest rates. In addition, once franking credits are taken into account, the broader Australian equity market offers a more attractive yield with relatively better valuations.

Within fixed interest the portfolio's exposure to Australian government bonds returned -0.2% for the month and 1% over the quarter, while the exposure to Macquarie Income Opportunities Fund contributed positively by outperforming the broader bond market, returning 0.2% for the month and 2.1% over the quarter.

Since inception the portfolio continues to track ahead of its cash 1% objective by around 2.5%.


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.


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 off ranking 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 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. The portfolio will lag the benchmark when international equities do well as the portfolio does not currently hold any international equity exposure. The portfolio has a significant allocation to equities therefore investors should be willing to accept a reasonably high degree of capital volatility, which could result in a short-term fall in the portfolio's value of around 18%.


Growth of $10,000

Income Reinvested

Asset Allocation as at 30 SEPTEMBER 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.

InvestSMART Income Portfolio -0.41% 2.04% 5.65% 8.92% 5.47%
Morningstar Multisector Moderate Index -0.30% 1.36% 4.27% 6.47% 5.13%
Excess to Benchmark -0.11% 0.69% 1.38% 2.45% 0.34%
RBA Cash Rate 1% 0.21% 0.65% 1.37% 2.90% 3.02%
Excess to Objective -0.62% 1.39% 4.28% 6.02% 2.45%

Peformance Summary to 30 September 2016


Contribution to Return 1 Month to 20 September 2016

Important Information

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.

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