One of the country's biggest listed investment companies, Djerriwarrh, says the market could remain volatile for months, with concerns about a reduction in US quantitative easing and the coming federal election likely to keep consumer and business confidence fragile.
The blue-chip investment house, which has more than $850 million in funds under management, said the sharemarket rally over the past year had resulted in several call options being exercised on some of its main holdings, including the big banks. That contributed to a 14.7 per cent decline in the fund's full-year profit of $37.7 million, down from $44.1 million over the corresponding period last year.
Djerriwarrh's net operating result - a better measure of the company's continuing investment, trading and option income - was down 7.5 per cent to $35.1 million, compared with $37.9 million last year.
The fund's portfolio return was 19 per cent compared with the S&P/ASX 200 Accumulation Index return of 22.8 per cent.
"The market was quite strong over the year, and as investors were looking for yield, they homed in on the major banks and other stocks such as Wesfarmers and Woolworths," Djerriwarrh managing director Geoff Driver said.
"We had a number of those positions called away - exercised - which means some of that stock was removed from the portfolio, so we got less dividend income because those stocks were no longer in the portfolio."
Djerriwarrh, which has close to 20,000 investors, focuses on the top 50 stocks - those with long-term prospects for increasing dividends. It turns over about 15 per cent of its portfolio annually.
In comparison, the Australian Foundation Investment Company, which has about $5.7 billion under management, turns over about 4 per cent annually.
Mr Driver said Djerriwarrh stood to benefit from the market volatility. "We expect a little bit of volatility in the market given what's happening in the US with the potential unwinding of its bond-buying program, and we've got reporting season coming up in the next month or so," he said.
"In some ways that will actually be good for Djerriwarrh ... because that will allow us to get back into some of the holdings that we lost through the exercises during this year, and allows us to add to our long-term portfolio holdings as well."
Djerriwarrh's final dividend was 16¢ a share fully franked, bringing total dividends for the year to 26¢ a share.