InvestSMART Core Growth Portfolio Update - December 2018

Portfolio produced a return of -6.59% (after fees) during the December quarter and no changes were made.

We saw a complete reversal of fortunes in international markets in the final quarter of 2018. US markets delivered their best quarterly return in 5 years in the September quarter, only for the December quarter to be the complete opposite. It was the worst quarter in almost 10 years. It was also the worst December in 50 years for US markets. The Vanguard MSCI Index International Shares ETF (VGS) has a 63% exposure to US markets, which explains why it detracted -3.61% in overall performance over the quarter.

Focusing on this first quarter of 2019, two key events will define international markets, being the ‘finalisation’ of Brexit and US Q4 earnings season. US earnings season has already taken on a bigger meaning from an Australian-centric point of view with Apple singling out China as the reason it will miss its original revenue estimates. If other US-listed firms follow suit and downgrade earnings due to waning Chinese demand, the ASX will likely see downward pressure given Australia’s reliance on Chinese demand for our goods and services.

The iShares Core S&P/ASX 200 ETF (IOZ) detracted -2.36% from performance over the December quarter. Australian equities were impacted by the global sell-off, as well as the Banking Royal Commission. The threat of regulation continues to surround the Financials sector, a sector that makes up over 40% of the ASX 200. This quarter, the Australian market will experience H1FY19 reporting season. We will direct a keen eye to those firms with Chinese

exposure as international and domestic firms are suggesting Chinese demand slipped in the final quarter of calendar year 2018 and this could hurt returns.

However, the Core Growth Portfolio is diversified. It has a 29% weighting to ‘defensive’ assets, something that mitigated the portfolio from seeing larger, more volatile trading losses. The iShares Core Composite Bond ETF (IAF) attributed 0.21% while the Vanguard Global Aggregate Bond Index (Hedge) ETF (VBND) added 0.07% in the final quarter as both domestic and international bonds markets saw solid inflows. Diversification will be key over the interim period as it will buffer from single-asset volatility.

Nevertheless, this Portfolio’s core focus remains growth over the long term (5 years). We believe the current correction is providing entry points for those looking for long-term, above average returns.

To see more information on our Core Growth Portfolio, click here

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