Portfolio update for August
After some decent gains in July, the Intelligent Investor Growth and Equity Income portfolios suffered a disappointing reporting season, with some decent performances being undone by a shocker from GBST Holdings (ASX:GBT) and a long slide from our largest holding, Trade Me (ASX:TME).
As a result, our Growth Portfolio dipped by 0.1% in August, after fees, while our Equity Income Portfolio lost 0.9%, compared to a gain in the All Ordinaries Accumulation Index of 0.8%.
GBST has been a continual thorn in our side over the past couple of years, but we've always seen enough to hang on. After the announcement of yet another profit warning in August, though, it's clear that has been a mistake. While it's always easy with the benefit of hindsight, we should have been more alert to some red flags that started fluttering.
First, in August 2015, the company said its development expenditure would need to be increased; then, later that year, the chief executive announced his retirement, before releasing a profit warning, selling shares and then being dismissed immediately; in amongst all this it became apparent that there had been disagreement within GBST about where to direct investment.
|To 31 August||1 mth||6 mth||1 yr||Since
|II Growth (%)||(0.1)||9.0||3.2||12.1|
|II Equity Income (%)||(0.9)||7.7||7.5||13.5|
|All Ords Accum. (%)||0.8||2.6||8.9||7.3|
With the departure of Stephen Lake and the appointment to chief executive of Rob De Dominicis – the leader of GBST's wealth business – we were comforted by the fact that the right side seemed to have won. Unfortunately, though, the damage had been done.
It's important not to jump at shadows, but these were of the Hammer House of Horror variety.
By the time we sold what remained of our holding, GBST had lost 66% from when our portfolios became investable in July 2015 (and the same since it entered our model portfolios a few months earlier) – with almost half the loss coming in August.
It's a tribute to some of our successes that the portfolios are nonetheless ahead since inception.
One of those successes has been Trade Me, which has returned a total of about 50% in the two years since the portfolios became investable. You wouldn't know it from August, though, in which it slumped 18% due to concerns over as yet small incursions being made by Facebook and Amazon. We continue to see considerable value in the stock and it remains on our Buy list.
On a brighter note, both portfolios benefitted from gains of 19% in Amaysim (ASX:AYS), 13% in IOOF Holdings (ASX:IFL) and 11% in Flight Centre (ASX:FLT). While the full-year results from all three were nothing to set the world alight, they each reflected strong performances in difficult circumstances. IOOF and Flight Centre, in particular, showed impressive turnarounds from disappointing half-year results back in February. Carsales (ASX:CAR), Sydney Airport (ASX:SYD) and Perpetual (ASX:PPT) also contributed gains of close to 10%.
|II Equity Income|
The Growth Portfolio was also supported by a 19% return from Fleetwood (ASX:FWD), which ended two consecutive years of losses with a net profit of $9m thanks to a stellar performance from its accommodation business and narrowing losses from its recreational vehicle business. We took advantage of the share price strength to trim the weighting in our Growth Portfolio from about 4.5% to 3%.
The Growth Portfolio returned 3.2% in the 12 months to the end of August, after costs, while the Equity Income Portfolio gained 7.5%, although both are behind the 8.9% return for the All Ords. Since they became investable on 1 July 2015, however, they have returned 12.1% a year and 13.5% a year, respectively, after costs, ahead of the All Ords' 7.3%.
Since they began life as model portfolios in 2001, the Growth Portfolio has returned 9.4% a year (after imputed costs of 0.97% a year), while the Equity Income Portfolio has returned 12.4%, compared to 8.0% for the All Ords.
You can find out about investing directly in Intelligent Investor and InvestSMART portfolios by clicking here.
Disclosure: The author owns shares in Trade Me and Amaysim.
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