PORTFOLIO UPDATE AND FINANCIAL PLANNING NEWS

Transcription

1 PORTFOLIO UPDATE AND FINANCIAL PLANNING NEWS March Quarter 2017 Portfolio Update Much to investors delight Global equity markets generally rose during the March quarter. The US was preoccupied with politics, with efforts to replace Obamacare amounting to nothing. Although the US Federal Reserve raised rates in March as expected, its outlook in terms of the US economic growth was somewhat soft. A relatively more benign political backdrop combined with strong economic data saw Eurozone equities outperform during the quarter. Globally the worst performing sub-sector during the quarter was Mining weighed down by falling commodity prices. In Australia the Mining sector also underperformed, however, the worst performing sub-sector domestically was Discretionary Retail over fears of the implications of a possible entry of Amazon as a competitor within the sector. Australian banks performed well and outperformed their global counterparts for the quarter. Health Care and Consumer Staples have been the best performing sectors in Australia year to date helped by improved earnings trends. The Australian Dollar weakened against most major currencies weighed down by falling commodity prices, particularly iron ore. The Euro strengthened on an improving political and economic backdrop. Still Tilting To Global Reflation From the perspective of our Australian Growth Portfolio we continue with a moderate overweight to stocks with a global focus and we remain underweight bond proxies (infrastructure and property trusts). Our conviction on domestically exposed stocks is somewhat lower. Unlike global conditions, we see less scope for improvement in economic conditions in Australia. The domestic economy continues to muddle through but we see little prospect of acceleration, particularly with housing peaking. Domestic themes are somewhat thin on the ground. Page 1 of 16

2 A 'Stock Picker's' Market So Far In 2017 In contrast to 2016 which saw a dramatic rotation to value and away from yield and growth, this year so far has been more of a stock picker's market. "Macro factors" could well re-assert particularly if the US Federal Reserve do more than expected in terms of lifting interest rates, though we think the most dramatic phase of sector rotation is likely behind us. Resources Valuation Appeal Increasing No Current Exposure While mining has underperformed over the last quarter it has weathered the iron price fall fairly well in aggregate terms. With Chinese growth continuing to show robust trends we may well have hit a shortterm bottom in the iron ore price after a circa 30% pullback from the very extended levels of late February. The iron ore price at circa $65 is still above our long term and 2018 expectation of $55 but in our view valuations for the big cap miners still look attractive. We currently have no exposure to materials, however we are watching share prices carefully as they fall away and valuation appeal increases. Our favoured stock in the resource space is BHP Billiton for its diversity and free cash-flow generation. Banks Neutral The Bank sector Price Earnings multiple is elevated in an absolute sense but in the context of rest of the market it appears about fair. Earnings trends in the bank sector have improved with modest upgrades seen this year. However, medium term we would expect credit growth to slow somewhat on the back of recent additional macro prudential tightening. Looking at the valuation of the bank sector suggests the market appears quite relaxed about housing. A soft landing remains our central case (helped by the likelihood that official rates are likely to stay on hold, in our view) but the elevated level of house prices and reacceleration of household debt is still a cautionary trend and influences our decision to maintain a neutral weighting to the banking sector. We feel there is no short term share price upside from these levels. Page 2 of 16

3 Market Excluding Resources & Banks The loss of the housing tailwind may not spell gloom and doom for the economy but will likely at least take the edge off growth. This reinforces our preference for globally/us focussed companies. P/E dispersion has stabilised around average levels, suggesting a relatively neutral position between growth and value in the market ex resources, all things equal. This is how performance has been tracking in recent months. Earnings revision trends have improved in the higher P/E areas of the market relative to the weak trends seen in the latter stages of Retail actually still has pockets of reasonably strong operating conditions but the threat of more intense competition (Amazon) has seen the sector marked back recently. Telcos already face strong competition and soft earnings momentum but face the threat of stronger competition (NBN and more mobile competition). Real Estate Trusts and infrastructure have rallied with renewed decline in bond yields. The Real Estate Trust sector dividend yield shows no premium over the market and looks unattractive to us given muted distribution growth and no franking benefit. A renewed leg-up in bond yields (which we think is quite likely) would pressure the bond proxies. From a portfolio perspective we remain cautious. In summary we are now looking towards increasing our cash positions as we struggle to find value in a market that looks stretched on valuation in the face of soft earnings growth and patchy economic data. Areas of interest remain stocks exposed to Government infrastructure spending as well as mining companies as value re-emerges with falling share prices. Page 3 of 16

4 Portfolio Additions and Removals Additions Australian Share Portfolios The following shares were purchased in the March Quarter Date of Purchase Sector Investment Investment Type Purchase Price Exposure Woolworths Limited (WOW) New Investment 14 Feb 2017 $ % Additions Australian Diversified Portfolios The following shares were purchased in the March Quarter Date of Purchase Sector Investment Investment Type Purchase Price Exposure Woolworths Limited (WOW) New Investment 14 Feb 2017 $ % Removals Australian Share Portfolios No shares were sold during the March Quarter Removals Diversified Share Portfolios The following shares were sold during the March Quarter Full or Part Investment Sale Date of Sale Sale Price Average Unit Cost Aconex Limited (ACX) Full Sale 30 Jan 2017 $3.65 $6.04 Woolworths Limited (WOW) Food prices in our view are expected to remain steady or to rise in 2017, providing a boost to Woolworths and Coles sales revenue following an extraordinary 2016 financial year where heavy discounting led to the supermarkets sector growing at its slowest rate in 20 years. We expect the market will remain competitive, albeit the risk of a price war is falling. Woolworths has invested about $1 billion over 18 months to lower food prices, as it played catch up with rivals after having put profit ahead of sales growth in previous years. The latest official retail trade figures show food prices rose 4.3 per cent in December compared to the same period a year ago. This is expected to show up in Woolworths and Coles sales growth, which has been helped by an increase in fresh fruit and vegetable prices. Analysts also expect suppliers to put pressure on supermarkets to increase prices as the price of sugar and other soft commodities continue to rise. During the first quarter, Coles crucial comparable food sales growth slowed to 1.7 per cent, compared to 2.8 per cent in the same period a year ago. We expect Coles to continue to show a slowdown in its sales growth, while Woolworths sales are expected to have grown, in a sign it has managed to wrest back some of its loss market share. Woolworth s comparable food sales rose 0.7 per cent in the first quarter of 2017 the first quarter of growth in almost two years in a sign the business is turning around. Page 4 of 16

5 Analysts expect the turnaround to have continued into the second quarter. With our view being the Woolworths turnaround is now underway, it was decided on 14 February to add Woolworths shares to our portfolios. The shares were purchased at a price of $ (incl. brokerage). Aconex Limited (ACX) On Monday 30 January Aconex announced in pre-market that they expected earnings before interest, tax, depreciation and amortisation (EBITDA) for the full year to be $15 million to $18 million - down from $22 million to $25 million as previously forecast. Aconex also announced that they expected fullyear revenue of $160 million to $165 million compared to the prior forecast of $172 million to $180 million. It was decided to immediately dispose of our entire holding at market open. This was done at a sale price of $3.64 (incl. brokerage). Aconex finished trading at $3.10 on the day, down 45%. Aconex traded at an all-time high of $8.48 in mid Aconex blamed lower than expected sales in the UK and the Americas during the half year to December Uncertainty around Brexit was partly to blame for the softer sales in the UK, and the US presidential election had impacted sales in the US. Also, a higher proportion of long-term contracts had resulted in lower additional short-term revenue, and currency movements in the British pound and the euro had been unfavourable. Aconex provides cloud-based and mobile collaboration software for the construction industry, which connects owners, contractors and their project teams. Page 5 of 16

6 Cash Positions Politis Australian Growth Portfolio Target Weighting 31 Dec Mar 2017 Cash 5.00% 28.18% 24.67% Shares 95.00% 71.82% 75.33% Total % % % Politis Australian Balanced Growth Portfolio Target Weighting 31 Dec Mar 2017 Cash 5.00% 23.61% 21.22% Shares 75.00% 56.38% 59.71% Hybrid Securities 20.00% 20.01% 19.07% Total % % % Politis Australian Balanced Portfolio Target Weighting 31 Dec Mar 2017 Cash 5.00% 17.78% 16.69% Shares 50.00% 37.44% 40.13% Hybrid Securities 45.00% 44.78% 43.18% Total % % % Politis Australian Conservative Portfolio Target Weighting 31 Dec Mar 2017 Cash 5.00% 12.56% 12.63% Shares 25.00% 18.57% 20.16% Hybrid Securities 70.00% 68.87% 67.21% Total % % % Politis Australian Hybrid Income Portfolio Target Weighting 31 Dec Mar 2017 Cash 10.00% 11.60% 12.66% Hybrid Securities 90.00% 88.40% 87.34% Total % % % Page 6 of 16

7 Politis Diversified Growth Portfolio Target Weighting 31 Dec Mar 2017 Cash 5.00% 12.50% 12.38% Australian Shares 17.44% 18.90% International Currency 95.00% 22.40% 21.05% International Shares 47.66% 47.67% Total % % % Politis Diversified Balanced Growth Portfolio Target Weighting 31 Dec Mar 2017 Cash 5.00% 10.42% 10.60% Hybrid Securities 20.00% 19.83% 19.45% Australian Shares 13.90% 15.08% International Currency 75.00% 17.87% 16.82% International Shares 37.98% 38.05% Total % % % Politis Diversified Balanced Portfolio Target Weighting 31 Dec Mar 2017 Cash 5.00% 7.70% 8.24% Hybrid Securities 45.00% 44.45% 43.69% Australian Shares 9.57% 10.40% International Currency 50.00% 12.24% 11.54% International Shares 26.04% 26.13% Total % % % Page 7 of 16

8 Portfolio Update Politis Australian Growth Portfolio Politis Australian Balanced Growth Portfolio Politis Australian Balanced Portfolio Politis Australian Conservative Portfolio Portfolio Performance 1 Month 3.92% 3 Month 4.96% 1 Year 10.88% 2 Year 10.48% 3 Year 19.02% 5 Year 60.82% Inception (1 Oct 09) 76.78% Portfolio Performance 1 Month 0.00% 3 Month 4.11% 1 Year 10.82% 2 Year 12.30% 3 Year 18.46% 5 Year 54.34% Inception (1 Oct 09) 71.73% Portfolio Performance 1 Month 2.81% 3 Month 3.06% 1 Year 10.80% 2 Year 14.76% 3 Year 17.77% 5 Year 46.51% Inception (1 Oct 09) 65.52% Portfolio Performance 1 Month 2.19% 3 Month 2.03% 1 Year 10.77% 2 Year 17.32% 3 Year 17.00% 5 Year 38.98% Inception (1 Oct 09) 59.43% Australian Indices March 2017 Quarter Performance ASX 200 Market Accumulation Index +4.82% ASX 200 Property Trust Index -1.13% ASX 200 Financials Index +4.87% (Exc Property Trusts) ASX 200 Industrials Index +2.08% ASX200 Healthcare Index % ASX200 Energy Index +2.12% ASX 200 Consumer Discretionary Index +0.95% ASX 200 Consumer Staples Index +8.79% ASX 200 Materials Index +0.13% ASX 200 Utilities Index +9.56% ASX 200 Telecoms Index -7.48% RBA Cash Rate 1.50% unchanged Politis Australian Hybrid Income Portfolio Portfolio Performance 1 Month 1.52% 3 Month 0.97% 1 Year 10.29% 2 Year 18.94% 3 Year 15.62% 5 Year 30.74% Inception (1 Oct 09) 51.36% Page 8 of 16

9 Portfolio Update Politis Diversified Growth Portfolio Politis Diversified Balanced Growth Portfolio Politis Diversified Balanced Portfolio Portfolio Performance 1 Month 2.02% 2 Months 3.21% 3 Months 0.66% 6 Months 5.55% 9 Months 5.95% 12 Months Inception (23 May 16) 3.74% Portfolio Performance 1 Month 1.83% 2 Months 2.65% 3 Months 0.64% 6 Months 5.08% 9 Months 5.88% 12 Months Inception (23 May 16) 4.19% Portfolio Performance 1 Month 1.60% 2 Months 1.98% 3 Months 0.62% 6 Months 4.52% 9 Months 5.81% 12 Months Inception (23 May 16) 4.78% International Indices March 2017 Quarter Performance DOW JONES Index +4.55% S & P 500 Index +5.53% NASDAQ Index +9.82% FTSE Index +2.52% DAX Index +7.25% NIKKEI 225 Index -1.07% HANG SENG Index 9.60% SHANGHAI Index +3.83% Gold (Spot $1, / Ounce) US Oil (Spot) $52.83 / barrel US -$3.99 Australian Dollar US cents US cents British Pence British Pence Japanese Yen Japanese Yen Hong Kong Dollars Hong Kong Dollars Chinese Yuan Renminbi Chinese Yuan Renminbi Euros Euros Page 9 of 16

10 Portfolio Performance Politis Australian Growth Portfolio Since inception (October 2009) the Politis Australian Growth Portfolio has seen an increase of 76.78% compared to the Target Return (Consumer Price Index (CPI) +5%) which has seen an increase of 60.24% over the same period, representing an outperformance of 16.54%. $1 million invested in the growth portfolio at inception would now be valued at $1,661,348. Politis Australian Balanced Growth Portfolio Since inception (October 2009) the Politis Australian Balanced Growth Portfolio has seen an increase of 71.73% compared to the Target Return (CPI +4%) which has seen an increase of 50.69% over the same period, representing an outperformance of 21.04%. $1 million invested in the balanced growth portfolio at inception would now be valued at $1,602,126. Page 10 of 16

11 Politis Australian Balanced Portfolio Since inception (October 2009) the Politis Australian Balanced Portfolio has seen an increase of 65.52% compared to the Target Return (CPI +3%) which has seen an increase of 41.70% over the same period, representing an outperformance of 23.82%. $1 million invested in the balanced portfolio at inception would now be valued at $1,529,607. Politis Australian Conservative Portfolio Since inception (October 2009) the Politis Australian Conservative Portfolio has seen an increase of 59.43% compared to the Target Return (CPI +2%) which has seen an increase of 33.24% over the same period, representing an outperformance of 26.19%. $1 million invested in the conservative portfolio at inception would now be valued at $1,458,736. Page 11 of 16

12 Politis Australian Hybrid Income Portfolio Since inception (October 2009) the Politis Australian Hybrid Income Portfolio has seen an increase of 51.36% compared to the Target Return (CPI +1%) which has seen an increase of 25.28% over the same period, representing an outperformance of 26.08%. $1 million invested in the hybrid income portfolio at inception would now be valued at $1,379,085. Politis Diversified Growth Portfolio Since inception (May 2016) the Politis Diversified Growth Portfolio has seen an increase of 3.74% compared to the Target Return (CPI +6%) which has seen an increase of 8.13% over the same period, representing an underperformance of 4.39%. $1 million invested in the Politis Diversified Growth Portfolio at inception would now be valued at $1,035,482. Page 12 of 16

13 Politis Diversified Balanced Growth Portfolio Since inception (May 2016) the Politis Diversified Balanced Growth Portfolio has seen an increase of 4.19% compared to the Target Return (CPI +5%) which has seen an increase of 7.13% over the same period, representing an underperformance of 2.93%. $1 million invested in the Politis Diversified Balanced Growth Portfolio at inception would now be valued at $1,037,107. Politis Diversified Balanced Portfolio Since inception (May 2016) the Politis Diversified Balanced Portfolio has seen an increase of 4.78% compared to the Target Return (CPI +4%) which has seen an increase of 6.13% over the same period, representing an underperformance of 1.35%. $1 million invested in the Politis Diversified Growth Portfolio at inception would now be valued at $1,039,279. Disclaimer - Please note our percentage returns and accumulated valuation figures are calculated using a methodology which accounts for realised and unrealised gains or losses over the specified period (net of share brokerage costs) in addition to investment income including franking credits. Our Returns are calculated on a pre-tax basis and exclude all fees. The performance information reported above is based on historic returns and there is no assurance that these returns are indicative of future returns. Page 13 of 16

14 Financial Planning News 30 June 2017 Reminders The approach to 30 June is always an important time of year to make sure your tax position is optimised for the financial year. Given the upcoming changes set to take effect from 1 July 2017, this lead up to 30 June could be even more important. Changes to Non Concessional Contribution Limits One of the most significant changes is the reduction in the non concessional contribution limit. Up until 30 June 2017, there is still an opportunity to take advantage of the $540,000 limit (or $180,000 limit if you are over 65 and meet the work test). From 1 July 2017 the 3 year limit will be reduced to $300,000, some $240,000 less than the current limit. The annual limit will be $100,000, $80,000 less than the current $180,000. Those with $1.6 million or more in superannuation will not be able to make any further non concessional contributions. Those with $1.4 million or more will not be able to fully utilise the $300,000 limit. If you have surplus personal cash available, or are considering applying the withdrawal and recontribution strategy to improve the tax components of your superannuation balance, taking action before 30 June may be beneficial. Changes to Concessional Contribution Limits and Eligibility to Claim a Deduction Up until 30 June 2017, those who are over 50 have a concessional contribution limit of $35,000 while those under 50 have a limit of $30,000. From 1 July 2017 this limit will be $25,000 regardless of age. Concessional contributions include employer mandated amounts, salary sacrifice amounts and personal contributions for which a tax deduction is claimed. For those who are currently contributing more than $25,000 per annum through their payroll (i.e. total of employer mandated and salary sacrifice) you should be ready to reduce the amount from 1 July It may actually be convenient for many to cease their salary sacrifice arrangements from 1 July 2017, as there will be an alternative measure available from 1 July 2017 that will still allow to you to obtain a tax benefit from contributing to superannuation. Currently, only those who have less than 10% of their income derived from employment are able to make a contribution from their personal bank account and claim a tax deduction. Generally speaking it is just sole traders or those with investment related income who can take advantage of this. Page 14 of 16

15 From 1 July 2017, all individuals who are eligible to contribute to superannuation will be able to claim a tax deduction for personal contributions. Therefore, salary and wage earners will not need to commit to a regular sacrificed amount out of their wage or salary. At any stage during the financial year they will be able to transfer an amount to their superannuation fund and claim a tax deduction on lodgement of their income tax return. However, it is important to note the procedure for doing so. To deduct the contribution, or a part of the contribution you must give to the trustee of the fund a) a valid notice, in the approved form, of your intention to claim the deduction; and b) the notice must be given before: if you have lodged your income tax return for the income year in which the contribution was made on a day before the end of the next income year - the end of that day; or otherwise - the end of the next income year The legislation goes on to require that the trustee of the fund must give you an acknowledgement of the notice and you must have that acknowledgement. Failure to satisfy any of the above will result in no deduction being allowed. Accordingly, those making deductible personal contributions must ensure that a notice of intention in the approved form is given to the trustee of their fund and an acknowledgement is received back within the timeframes set out above. Before deciding to cease salary sacrifice arrangements in favour of taking advantage of the increased flexibility surrounding personal concessional contributions, you should keep in mind these requirements. For some it may be easier to continue salary sacrifice arrangements, albeit reviewed from current year in light of reduced contribution limits. $1.6 Million Limit On Retirement Phase Pension Accounts If you have pension accounts with a value in excess of $1.6 million, you will need to take action at or before the 30 th of June to ensure you adhere to this limit by 1 July This may mean returning money to accumulation phase or withdrawing funds from the superannuation environment. Please contact your adviser if you wish to discuss how these changes may have an impact on your financial situation. Disclaimer - The information in this newsletter is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information in this newsletter, you should consider the appropriateness of it having regard to your objectives, financial situation and needs. In particular, you should seek financial advice prior to acting on any of the information. Page 15 of 16

16 POLITIS INVESTMENT STRATEGIES Head Office Location 1st Floor, NCYC Commercial Centre 91 Hannell St, Wickham NSW 2293 Head Office Postal PO Box 168, Wickham NSW 2293 Head Office Contact T: (02) F: (02) Politis Investment Strategies Pty Ltd - ABN: AFSL: