Diversified Portfolios - InvestSMART Income - 31 August 2016
InvestSMART Income Portfolio August Report
After posting a strong 6.4% return in July the Australian equity market retraced 1.6% in August. The portfolio is biased towards Australian equities at the expense of international equities, which were up 1.3% for the month.
The InvestSMART Diversified Income portfolio returned -0.3% over the month of August predominately due to the pull-back in Australian equities to which the portfolio has an exposure of around 30%. It is worth noting that the portfolio does not have any exposure to international equities.
The portfolio's exposure to Australian REITs detracted from the portfolio over the month with local REITs suffering a pull-back of -2.6% after many months of strong returns. 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 Australian government bonds returned 0.5%, while the exposure to 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 1% objective by around 3.0%.
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.
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 portfolio continues to hold a significant weight to Australian equities given itshigh yielding characteristics relative to other asset classes as well as what we believeto be reasonably attractive valuations. Taking into account the additional benefit offranking credits, holding Australian equities as part of an overall income portfolioallows investors to generate a higher level of income than they would from moretraditional sources of income, such as fixed interest and cash, especially in a lowinterest rate environment. However, investors need to accept that there will be higherlevels 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 anexposure to Australian credit and overseas securities. The portfolio is expected to dowell in an environment where Australian equities outperform other asset classes andwhere credit outperforms government bonds. The portfolio will lag the benchmarkwhen international equities do well as the portfolio does not currently hold anyinternational equity exposure. The portfolio has a significant allocation to equitiestherefore investors should be willing to accept a reasonably high degree of capitalvolatility, which could result in a short-term fall in the portfolio's value of around 18%.
|PERFORMANCE TO 31 AUGUST 2016||1 MONTH||3 MONTH||6 MONTH||1 YEAR||SI* (P.A.)|
|InvestSMART Income Portfolio||-0.27%||2.64%||7.92%||8.28%||6.00%|
|Morningstar Multisector Moderate Index||0.02%||1.82%||5.36%||6.38%||5.58%|
|Excess to Benchmark||-0.28%||0.82%||2.56%||1.91%||0.43%|
|RBA Cash Rate 1%||0.21%||0.67%||1.42%||2.94%||3.05%|
|Excess to Objective||-0.48%||1.96%||6.50%||5.34%||2.96%|
Peformance Summary to 31 August 2016
Contribution to Return 1 Month to 31 August 2016
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