For most of this financial year, the Intelligent Investor Growth and Equity Income portfolios have been struggling to keep up with the surging banking sector. But there was a sharp turnaround in May, with the big four banks giving up a whopping 12% on average, due in large part to the Government’s plan to impose a levy amounting to around 4% of their net profit (or more after adjusting for a through-the-cycle average of bad debts).
Since they contribute around 25% of the All Ordinaries Index, that knocked it down by about 3% alone, largely accounting for its 2.6% fall.
Our Equity Income Portfolio only holds around 10% in the big banks (split between Commonwealth Bank (ASX: CBA) and Westpac (ASX: WBC)), so the drag on it was closer to 1%, but it managed to overcome that to post a loss of just 0.1%.
Our Growth Portfolio doesn’t hold any of the big four banks, so it avoided this downdraught and managed to post a gain of 1.0% for the month.
Within those small moves, however, there were some big movements.
Equity Income Portfolio
The best performer in percentage terms for the Equity Income Portfolio was Ainsworth Game Technology (ASX: AGI), which gained 19%, in part due to hopes for the success of a new Pac-Man game in the US. However, that added just 0.2% to the portfolio due to the stock’s weighting of only 1.4%.
More significant contributions in dollar terms came from Flight Centre (ASX: FLT) (up 14%), which benefitted from tentative signs that airfare price deflation may be abating, Sydney Airport (ASX: SYD) (up 8%), PMP (ASX: PMP) (up 9%) and Amaysim (ASX: AYS) (up 7%). These all have weightings of 3.5–5% and, between them, they delivered a return of 1.3% to the portfolio, more than offsetting CBA and Westpac.
After the banks, GBST Holdings (ASX: GBT) was the worst performer, losing 8% over the month – almost all of it on the last trading day. There was no obvious reason for the fall, but it was a big move even for a volatile stock like GBST.
|1 mth||12 mths||Since
|Equity Income Portfolio||(0.1)||11.2||14.2||13.1|
|* When the portfolios began accepting real money.|
|** When the portfolios began as models. We have deducted notional costs for the period from July 2001 to July 2015 of 0.97% pa, matching the costs since the portfolio began accepting real money.|
Moves like this can be unsettling because they sometimes foreshadow bad news. We’ve suffered from this with GBST before. It’s important not to jump at shadows, though, and as value investors we pay attention to price movements rather than being directed by them. We’re on the look-out for anything to explain the fall (and hopefully to explain it away), but we won’t be driven to action if we can’t find reassurance.
Ainsworth was also the best performer in the Growth Portfolio, but it had a greater impact due to its higher weighting (of 2.2%) and added 0.34% to the portfolio. Flight Centre and Sydney Airport were also strong contributors, as was Fleetwood (ASX: FWD) (up 9%) and Origin Energy (ASX: ORG) (up 8%).
Origin Energy has gained almost 50% over the past six months (although it remains well below the initial purchase for the (then model) portfolio in 2013, and we took advantage of this strength to sell the holding. We’re holding the proceeds in cash at the moment, but will hope to reinvest them soon.
GBST was also a weak performer for the Growth Portfolio. Worse, though, was Nanosonics (ASX: NAN), which fell 11% over the month – also for no obvious reason, other than the fact that it has more than doubled in 18 months and, trading at 13 times revenue, it is highly sensitive to swings in sentiment.
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Disclosure: The author owns shares in GBST and Nanosonics.