InvestSMART International Equities Portfolio - September 2018
• The InvestSMART International Equities Portfolio produced a return of 6.84% (after fees) during the September Quarter.
• We have replaced VEU with VGS as a more cost-effective option for investors. The strength of international markets (US in particular) and weakness in the AUD resulted in a higher % international exposure at the quarter end.
• Estimated yield on the portfolio is currently 3.48%
• Since inception the International Equities portfolio has returned 9.26% p.a.(after fees)
With the addition of the Vanguard MSCI Index International Shares ETF (VGS) in the quarter, this ETF has become the core holding around which we can base all future market tilts. VGS encapsulates 22 of the 23 equity markets (excludes Australia) in the developed world and is market cap weighted. The iShares S&P 500 ETF (IVV) was redomiciled by BlackRock from the US to Australia which had no impact on the portfolios.
The International portfolio was InvestSMART’s best performing portfolio for the quarter and the outperformance was due to the portfolio’s large exposure to the US. The September quarter was the best quarter in US markets since the December 2013 quarter, on the back of economic growth, higher consumption and a booming employment market. Earnings growth in the US is also the strongest of the developed world. As this portfolio is unhedged provided the fund with another kick; the AUD fell to its lower levels in over 2.5 years to the end of September, meaning, IVV and VGS both experienced FX-related gains.
The Vanguard FTSE Europe Shares ETF (VEQ) was fell after the threat of US tariffs on European car manufacturers, the lingering effects of the Italian elections and a fear of banking contagion from the collapse of the Turkish Lira. With the US mid-term elections taking place in November, there is a high risk that further tariffs proposals could be directed at Europe.
The iShares Asia 50 ETF (IAA) suffered from the US-China trade war becoming fact as two tranches of tariffs (US$50 billion and US$200 billion worth) of tariffs were enacted. The physical effects of the tariff are likely to be seen in 2019, however positioning has already begun. We note there is possible ‘value’ from the selloff and we may see Asia bouncing in the final quarter of the year.