InvestSMART Portfolios Monthly Update - November 2020

What a month November was, so much so it had everyone diving back into the record books to work out just how strong the one-month performance of equities really was.

Looking domestically, Australian equities rose 10.2 per cent in November on a total returns basis. That is the best one-month rise on record for the S&P ASX 200, however, the ASX 200’s history is only short having started on March 31, 2000. Therefore, if we look to the broader and older All Ordinaries, November was the best one-month rise since December 1993 which saw a rise of 8.3 per cent. Going further still on the monthly rises, the last time the All Ordinaries did a double-digit increase in a single month was March 1988, rising 13.2 per cent, so a full three decades since we have seen a double-digit rise locally. Interestingly, one-month double-digit rises happened eight times in the 80s – could the 20s be the same?

However, the records didn’t stop domestically, records were smashed internationally as well.

Europe just logged its best one-month rise on record with the STOXX-600 up 14 per cent in November. The pan-European index began in 1986 so this is significant. The German DAX rose 12.7 per cent and the French CAC 17.7 per cent. Then there was the Italian MIB which rose 23 per cent, outdone by Spain’s IBEX adding an astounding 25.2 per cent in November – a new record for both.

Hopping across the Atlantic and looking State side, the story was the same – the Dow Jones was up 11.8 per cent for the month of November, its best one-month rise since January 1987. The S&P 500 and the NASDAQ rose 10.8 per cent and 11.8 per cent respectively, their biggest month since April. What the US markets also achieved throughout November were new record all-time highs, a trend that has continued into December.

There is a clear caveat from all this record-smashing performance and that is that this is clearly abnormal. The rises seen across the globe in November are very good on a per annum basis, let alone in a single month – it is not sustainable month on month, so don’t be surprised if these records hold for another three decades.

It’s also clear what the trigger was for the November performance – the beginning of the end of the pandemic.

We don’t think that is too much of an ‘out there’ statement. The reactions to the phase three trials of not one but three vaccines, two of which have over 90 per cent effectiveness, shows that the markets believe the ‘when will this end’ has become ‘now this will end’. In short, global markets now have a timeline to the end of COVID-19, and that is 2021. Further to this, December has seen the first country in the world (the UK) announce it has approved the Pfizer vaccine for use in the general population and will begin rolling out the first batches by no later than December 11.

The one other trigger for the rally in November was the US Presidential election. A Joe Biden presidency is likely to be highly stimulative for the US economy over his four years in the Oval Office as he looks to get the US past the economic hit the pandemic has inflicted on his country – these measures will flow into global markets over time and fuelled the vaccine rally in November.

Looking past the November numbers, there are a few other performance records that catch our attention. First is that the ASX on a rolling quarterly total returns basis is now the best performing index of the 24 MSCI developed markets (September through November). However, that leading position the ASX finds itself in is quickly overtaken by international equities on a 1- 3- and 5-year basis, particularly US equities even with COVID-19 hitting the US harder than any other nation.

Sadly, most Australian investors have missed, and continue to miss out on this outperformance of international equities due to being severely underinvested. The recently released ASX annual survey of Australian investors found that only 2.7 of every 10 investors have international shares. And, of those that are invested in international equities, they only hold a 2 per cent weight to international; this is a huge missed opportunity.

So, yes, the ASX broke records in November but the trend remained – international equities outperformed domestic equities once again.

This underweight issue is why InvestSMART’s diversified portfolios are constructed to give exposure to all asset classes according to one’s risk profile. Each one has some exposure to international equities so that investors can take advantage of their consistent outperformance.

It is also why we offer the International Equities Portfolio to directly assist with this underweight issue. The portfolio is diversified across the globe with exposure to all 23 MSCI developed markets. It has consistently been our best performing portfolio and has averaged 10.88 per cent since inception. It’s a very good option if you believe you’re underweight international equities.

Diversified Portfolios

Conservative

• The InvestSMART Conservative Portfolio returned 3.23% for the month of November after fees. This exceeded the average of peers by 0.66% for the month.
• Domestic equities were the main contributor to the performance for the month increasing 1.24% followed by international equities with a return of 0.90% and property with 0.75%.
• There were no changes to the portfolio in the month.

Balanced

• The InvestSMART Balanced Portfolio returned 4.91% for the month of November after fees. This exceeded the average of peers by 0.30% for the month.
• Domestic equities were the main contributor to the performance for the month increasing 2.37% followed by international equities with a return of 1.61% and property with 0.65%.
• There were no changes to the portfolio in the month.

Growth

• The InvestSMART Growth Portfolio returned 6.31% for the month of November after fees. This exceeded the average of peers by 0.53% for the month.
• Domestic equities were the main contributor to the performance for the month increasing 2.89% followed by international equities with a return of 2.37% and property with 0.72%.
• There were no changes to the portfolio in the month.

High Growth

• The InvestSMART High Growth Portfolio returned 7.87% for the month of November after fees. This exceeded the average of peers by 0.11% for the month.
• Domestic equities were the main contributor to the performance for the month increasing 3.76% followed by international equities with a return of 3.34% and property with 0.55%.
• There were no changes to the portfolio in the month.

Single Asset Class Portfolios

International Equities

• The InvestSMART International Equities Portfolio returned 6.77% for the month of November after fees.
• Both Europe and the US contributed strongly to returns contributing 1.39% and 1.93% to the portfolio for the month respectively
• There were no changes to the portfolio in the month.

Interest Income

• The InvestSMART Interest Income Portfolio returned 2.46% for the month of November after fees.
• Australian Treasury Bonds was the main detractor from the portfolio attributing -0.22% for the month.
• There were no changes to the portfolio in the month.

Property & Infrastructure

• The InvestSMART Property & Infrastructure Portfolio returned 9.46% for the month of November after fees.
• Australian real estate investment trusts (AREITs) attributed the most to the portfolio's performance adding 3.38% for the month
• There were no changes to the portfolio in the month.

Hybrid Income

• The total portfolio return was 0.08% for the month including franking credits. The estimated running yield is approximately 4.25%, and the estimated yield to call/maturity is 4.0% including franking credits.
• The total portfolio return was 1.52% and 2.81% for the quarter and 12-month periods respectively. Since its inception, the total portfolio return is 3.96% including franking credits, which is 0.14% under its return objective of the RBA Cash rate plus 3%.
• There were no transactions in the portfolio during the month
• With little supply expected in short term, the ‘chase for yield’ environment should be supportive for hybrid trading margins in the medium term

For more information on our Diversified Portfolios, click here.