Model portfolio updates and what's on at Eureka Report

Model portfolio updates

Growth First model portfolio

Eight out of the eleven stocks are in positive territory, with Capitol Health (CAJ), ToxFree Solutions (TOX) and Qube logistics (QUB) being the detractors. I am still comfortable with all three of these. Especially Qube: the longer term opportunity from its Intermodal terminal in Moorebank is largely being ignored at current prices.

Capitol Health (CAJ) has been heavily sold off, due to fears around the review of the Medicare Benefits Schedule and its potential impacts on radiology funding. Further, competitor Integral Diagnostics is in the process of listing, and Australia's largest radiology group in I-MED is also considering a listing. It is always tough to pick the bottom, but the worst case for all of these fears is more than priced in to the CAJ share price.  

Many of the best performing small caps achieve their gains on the back of specific industry situations under management's control. That is, macro concerns such as lower growth from China usually have little impact. These are the types of stocks we continue to look for and utilise our high cash balance.  

Having said that, we think the portfolio is in a fortunate position, in that it can perform well from here in either a declining or an improving market. The high beta combination of stocks means that it can still outperform in an increasing market despite the large cash balance. With this in mind we can afford to wait and see if there is a more severe market sell-off before using the remaining cash.

-- Simon Dumaresq

Income First model portfolio

The Income First model portfolio has continued to perform to expectations. Virtus Health, Australia's largest IVF business commenced trading on an ex-dividend basis on September 30, adding to the portfolio's accrued yield with a 14 cent fully franked dividend. Pleasingly, even though the portfolio is only slightly more than 50 per cent invested, the overall yield is edging towards the 3.5 per cent mark on starting capital. This bodes well for the portfolio's primary objective of producing a strong income for investors and leads me to the conclusion that the income of the portfolio is well on track.

This week performance was solid and we have little to report. No changes were made to weightings in terms of the stocks held. Instead I took the time to examine the behaviour of the portfolio and its volatility (something I will monitor on an ongoing basis). Hopefully in volatile times this will provide some solace in terms of investment returns.

This week I will likely return to a search for further portfolio inclusions in order to continue to invest the portfolio and produce additional investment income. Look out for further stock recommendations to come.

-- James Samson

LIC model portfolio

There are no changes to the LIC model portfolio this week. The biggest news to come out of last week for the portfolio was the placement in Cadence Capital (CDM). CDM raised a further $18 million on top of the $119m raised from the conversion of options in September. The new injection of capital has not weighed on the share price with CDM closing on Friday at $1.49.

WAM Research Limited (WAX) continues to be a stand out performer increasing by 5.5 per cent since being included in the portfolio in a market which has declined more than 9 per cent over the same time period. Encouragingly WAX has also outperformed stable mates WAM Capital Limited (WAM) and WAM Active Limited (WAA) over the same time period too. Of course, let's not get carried away on short-term performance though, it is a long game.  

-- Mitchell Sneddon

International model portfolio

As someone once said “timing is everything”. We launched our International model portfolio on July 1, 2015 when markets were approaching year highs (the S&P 500 peaked at 2128 on July 20); since then global markets have undergone a sharp correction.

For the recent quarter the S&P 500 is down 6.94 per cent - the worst quarterly performance since the third quarter of 2011. European stocks have fallen 9.45 per cent, Japanese equities have lost 14.4 per cent and the Australian market is off 8.9 per cent. The MSCI World Index, which tracks developed-country stocks, fell 9.3 per cent in the period.

That said, the model portfolio has lost just 6 per cent for AUD investors due to the declining value of the Australian dollar. Ever since we initiated coverage of international stocks at Eureka Report we have been imploring investors to direct more funds off shore to take advantage of the currency tailwind.

Best “relative” performers during the quarter include New Relic 5.5 per cent and Facebook 3.25 per cent. Laggards include Lenovo -37 per cent and Tata Motors -33 per cent (returns in local currencies).

It's important for investors to realise that investing in global equities is not a three month proposition - it's more of a three year proposition if not a 30 year proposition. It's also key to realise that no matter how well a company is doing, its share price is unlikely to advance in a down market.

So, if markets are currently in a bottoming process - which I believe they are - international portfolio investors should relax. All our companies are executing well and I expect that the third quarter earnings season, which begins in two weeks, should reinforce that.

At this point I'm making no changes in the portfolio.

If you haven't bought the model portfolio yet NOW is an excellent time to do so!

-- Clay Carter

What's on at Eureka Report this week

Our series of interviews with key players in the LIC space continues this week. LIC analyst Mitchell Sneddon will be speaking to Boyd Peters, MD of Investment Company Services, on Tuesday October 6 at 1.30pm. This investor relations company helps LICs raise capital, list on the ASX or ramp up shareholder engagement. Tune in to find out why there are so many new LICs and what really happenings during a capital raising.

Wednesday October 7 kicks off with Alan Kohler's interview with DirectMoney executive chair Stephen Porges at 9.30am. We've interviewed several players in peer-to-peer lending over recent months, so this is a great chance to ask your questions about what makes DirectMoney different to the others.

At 11am, Alan Kohler will speak to Frank Wilson, chief executive of sandalwood supplier TFS Corporation. Then at 12pm, Mitchell Sneddon will update subscribers on the performance of the LIC model portfolio.

On Thursday October 8, Alan Kohler will host Warren Ebert, chief executive of Sentinel Property Group, a commercial property investment firm. Although residential property prices are regularly in the news, commercial property is discussed less often, so get ready to ask any questions about the risks and rewards of investing in this space.

Rounding out the week, on Thursday at 1.30pm, don't miss brightday's webcast on SMSF secrets. James Leplaw, Kirstie Spicer and host Drew Stansbury will share some of the advantages investors may have with an SMSF, including greater flexibility and control.

Remember, as a Eureka Report subscriber, you have exclusive access to these interviews. You can click here to register for any event and receive a reminder email before it starts.

-- Elizabeth Redman