InvestSMART Portfolios update, May 2017

Global stock markets were up in May, but banks have led the ASX lower.

After several months of rises, the Australian share market retreated in May with the S&P/ASX 200 closing down 3.4%.

The S&P/ASX 200 Index was impacted by hefty falls in the big four banks, which were all down between 9% and 14% for the month. Investors were concerned with the low-growth outlook for banks, the planned introduction of a levy on the five biggest banks, and housing market risks.

The mood was more positive on international markets, with the US S&P 500 index up 1.1% for the month and the MSCI World Ex-USA index up 3.0%.

In Europe, stocks were up, with optimism rising on the back of centrist Emmanuel Macron winning the French election in a landslide. The euro also strengthened after German Chancellor Angela Merkel said she believed the euro was too weak. The comment resulted in the euro rising, which was up 3.8% against the Australian dollar.

Australian bonds returned positive results, with the iShares Core Composite bond ETF adding 1.3% and the Macquarie Income Opportunities fund returning 0.5%. In the US, market punters are expecting an interest rate rise in June, though expectations of another rate rise this year have dropped given soft inflation data.

With markets continuing to remain cautious, the World Bank has provided some optimism, forecasting global growth to be 2.7% in 2017, and to then strengthen further in 2018 to 2.9%.

Diversified Income Portfolio

The InvestSMART Diversified Income Portfolio (see Table 1) fell 0.6% (after fees) during May on the back of falls on the ASX.

With the ASX led lower by the banks, the iShares Core S&P/ASX 200 fell 2.8%, as did the Vanguard Australian Property Index ETF, which fell 1.0%.

The fixed interest component of the portfolio produced positive returns, with the iShares Core Composite bond ETF returning 1.3% and the Macquarie Income Opportunities fund returning 0.5%.

Since inception, the portfolio has returned 4.6% per annum (after fees).

Table 1: Performance - Diversified Income Portfolio
Portfolio to 31 May 2017  1 Mth  3 Mths 1 Year S.I. (p.a.) *
InvestSMART Diversified Income Portfolio -0.58% 1.41% 4.48% 4.59%
Morningstar Multisector Moderate Index 0.43% 2.32% 4.68% 5.02%
Excess to Benchmark -1.01% -0.91% -0.20% -0.43%
* Inception date is 29 Dec 2014. Performance is after investment fees and admin fees

Core Growth Portfolio

The InvestSMART Core Growth Portfolio (see Table 2) produced a return of 0.2% (after fees) during May.

With the ASX led lower by the banks, the iShares Core S&P/ASX 200 fell 2.8%, as did the Vanguard Australian Property Index ETF, which fell 1.0%.

International markets fared much better, with the portfolio’s international ETFs returning 2.8%. Fixed interest and cash also produced positive results.

Since inception, the Core Growth Portfolio has returned 8.0% per annum (after fees).

Table 2: Performance - Core Growth Portfolio
Portfolio to 31 May 2017  1 Mth  3 Mths  1 Year S.I. (p.a.) *
InvestSMART Core Growth Portfolio 0.21% 3.99% 8.75% 8.04%
Morningstar Multisector Growth Index 0.13% 3.59% 8.30% 8.79%
Excess to Benchmark 0.08% 0.39% 0.44% -0.75%
* Inception date is 24 Oct 2014. Performance is after investment fees and admin fees

International Equities Portfolio

The InvestSMART International Equities Portfolio (see Table 3) produced a return of 2.7% (after fees) during May, with positive returns across all ETFs.

International markets were once again buoyant, with the best performing ETF the Vanguard FTSE Europe Shares ETF, which returned 4.5%. The ETF benefited from a rise in European optimism, which led to a rise in European stocks and the Euro, which was up 3.8% against the Australian dollar.

In the US, the iShares S&P 500 ETF edged higher, returning 1.6% for the month.

Since inception, the portfolio has returned 12.3% per annum (after fees).

Table 3: Performance - International Equities Portfolio
Portfolio to 31 May 2017 1 Mth 3 Mths 1 Year  S.I. (p.a.) *
InvestSMART International Equities Portfolio 2.73% 8.04% 12.56% 12.25%
MSCI World ex Australia NR AUD Index 2.75% 8.36% 13.33% 14.89%
Excess to Benchmark -0.02% -0.32% -0.77% -2.64%
* Inception date is 24 Oct 2014. Performance is after investment fees and admin fees

Property Portfolio

The InvestSMART Property Portfolio (see Table 4) fell 1.3% (after fees) during May.

Westfield Corporation was the biggest detractor in the portfolio, falling 6.6% on concerns that sluggish bricks and mortar retail sales would translate to lower growth for Westfield.

The fall was partially offset by the Goodman Group, which returned 4.8% for the month. The Goodman Group is expected to be a key beneficiary of Amazon’s entry into Australia.

Since inception, the InvestSMART Property Portfolio has returned 8.7% per annum (after fees).

Table 4: Performance - Property Portfolio
Portfolio to 31 May 2017 1 Mth  3 Mths  1 Year  S.I. (p.a.) *
InvestSMART Property Portfolio -1.32% 1.54% 0.25% 8.74%
S&P/ASX 200 A-REIT TR Index -1.00% 2.25% 2.30% 10.95%
Excess to Benchmark -0.32% -0.70% -2.05% -2.21%
* Inception date is 23 Dec 2015. Performance is after investment fees and admin fees

Fixed Income Portfolio

The InvestSMART Fixed Income Portfolio (see Table 5) produced a return of 0.7% (after fees) during May, with the main contributor the iShares Core Composite Bond ETF, which returned 1.3%.

The portfolio is 20% invested in the BetaShares Australian High Interest Cash ETF, which returned 0.2% through the month.

Since inception, the InvestSMART Fixed Income Portfolio has returned 2.6% per annum (after fees).

Table 5: Performance - Fixed Income Portfolio
Portfolio to 31 May 2017  1 Mth   3 Mths 1 Year  S.I. (p.a.) *
InvestSMART Fixed Income Portfolio 0.71% 1.32% 1.81% 2.64%
Bloomberg AusBond Composite 0 Yr Index 1.17% 2.38% 2.50% 4.24%
Excess to Benchmark -0.46% -1.06% -0.69% -1.60%
* Inception date is 23 Dec 2015. Performance is after investment fees and admin fees

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