SPS Managed Portfolios Aust Equities Income Portfolio

Transcription

1 SPS Managed Portfolios Aust Equities Income Portfolio For further information on Baillieu Holst s Discretionary SPS Managed Portfolios, contact your adviser or your details to Strategic Planning Services: SPS@baillieuholst.com.au *The author of this document is a former ATP Touring Professional tennis player MONTHLY UPDATE As at 31 July 2015 As Djokovic rebounded from losing the French to claim his third Wimbledon, so too did equity markets. No early new financial year nerves for equity markets as they posted first round wins, celebrating the achievement of Serena Williams who currently holds all four major titles. A strong rebound in form from equity markets as Greece was dealt with (for now). Most sectors locally experienced strong performances with the exception of Energy and Materials, who both felt the impact of a slowing Chinese economy. Several companies continued to choke under the pressure confessing earnings downgrades as the court schedule is released on the impending reporting season. One player not choking under the pressure was Hewitt, bringing the Aussie Davis Cup team up from the brink of defeat in a vintage Lleyton display well done mate!! A Lonsec rated fund Related disclaimer on back page Portfolio revisions: Changes to the squad We bought Orora (ORA) and Village Roadshow (VRL). We exited our positions in Australian Foundation Investment Company (AFI), Australia and New Zealand Capital Notes (ANZPD) and Crown Resorts Subordinated Debt Note (CWNHA). FIG.1: MARKET SCOREBOARD JULY 2015 PERFORMANCE Index Level Performance ASX 200 Index % Health Care % Consumer Staples % Industrials % Consumer Discretionary % Utilities % Property % Telecommunications % Financials (ex Property) % Energy % Materials % RBA cash rate 2.00% - Australian dollar $0.053 Gold (spot $/0z) $76.74 Oil (WTI spot) Baillieu Holst Limited SPS Managed Portfolios Page 1

2 Post-match press conference: Market commentary Most global equity markets were applauded this month, after Greece shook hands and accepted tougher terms in their 86 billion bailout package imposed on them by European Finance Ministers just a week earlier. After being closed for most of the month, Greek banks re-opened however its stock market remained closed for business. The remaining European equity markets posted wins and joining the winning list was the US markets, however emerging markets underperformed led by further falls from China. Over on the US hardcourt summer season, Fed Chairwoman Janet Yellen continued to believe that the US economy will be ready for tighter monetary policy this year, anticipating that it will be appropriate to raise the target range for the federal funds rate. Over on the US hardcourt summer season, Fed Chairwoman Janet Yellen continued to believe that the US economy will be ready for tighter monetary policy this year US economic data continued its solid results with the Manufacturing ISM for June climbing to 53.5, defeating consensus at 53.2 and previous at The Non-Manufacturing ISM Index in June edged higher to 56.0 defeating previous at 55.7, although defeated by consensus at Non-farm payrolls for June increased by 223,000 defeated by consensus at 233,000 while the unemployment rate fell to 5.3% defeating previous at 5.5% and consensus at 5.4%. Housing starts for June rebounded 9.8% month on month to an annual rate of 1,174,000 defeating consensus at 1,106,000. CPI climbed 0.4% month on month defeating consensus at 0.3%, while retail sales for June fell -0.3% month on month defeated by consensus at +0.3%. China s equity markets continued its downward spiral falling nearly 15% for the month prompting further measures from the People s Bank of China. This time, China s top 21 securities brokerages said that they would collectively invest at least 120 billion yuan to help stabilise the country s stock markets after a slump of nearly 30 percent since mid-june. Additionally, officials have decided to suspend new stock sales impacting billions of dollars of initial public offerings in the pipeline. Mixed manufacturing figures for the month showed levels of contraction. The official PMI for June edged lower to 49.4, defeated by previous and consensus both at However, the preliminary HSBC PMI figure for July edged up to an 18 month high to 52, defeating previous at 50.7 and consensus at Second quarter GDP growth remained at 7.0% defeating consensus at 6.8%. Industrial Production of 6.8% year on year also defeated consensus at 6.0% and previous at 6.1%. Local economic readings are becoming slightly more positive with the unemployment rate for June steady at 6.0% defeating both consensus and previous at 6.1%. Business conditions survey conducted by NAB showed a strong pick up hitting its highest level in nearly a year at defeating previous at Housing sector printed some solid results with dwelling commencements climbing to near record levels of 8.6% quarter on quarter and housing credit grew 7.3% year on year reflecting its best level since October The strength in the US Dollar and falling commodity prices saw our Dollar fall, enabling the RBA to leave cash rates at 2.0%, while across the Tasman, the Reserve Bank of New Zealand made another 25 basis point cut to 3.00% to its interest rates. Base metals fell in straight sets with iron ore dropping 11% and oil approximately 20% as the sanctions on the Iranian economy looking likely to be lifted which would possibly see the nation adding more oil to the already over-supplied market. Gold fell to February 2010 levels with locker room chatter that Chinese were heavy sellers. Base metals fell in straight sets with iron ore falling 11% and oil approximately 20% Scoreboard from the outside courts The best performing sectors in July were Health Care (+9.6 percent), Consumer Staples (+7.5 percent) and Industrials (+6.5 percent). The worst performing sectors were Materials (-1.1 percent), Energy (+0.3 percent) and Financials (ex Property) (+4.6 percent). The local market enjoyed positive results in every sector except the Resources. The double faults continued from companies announcing earnings downgrades, while the M&A theme continued. The biggest first round losers included two from the Health Care sector and two from the Education sector. Sonic Health Care (SHL -3.3%) downgraded its FY15 EBITDA to $730 million from previous guidance of $748-$762 million. SHL cited rising costs and a weak Australian pathology market causing the downgrade; Primary Health Care (PRY -8.7%) downgraded FY15 EBITDA to $400 million from previous guidance of $410-$425 million after weaker than expected patient volumes in the fourth quarter; the FY15 result was in line for Navitas (NVT -3.7%) however the outlook guidance and commentary disappointed consensus expectations; Affinity Education Group (AFJ -8.6%) gave first half CY15 EBITDA guidance well below consensus expectations after a drop off in enrolments. The next day, G8 Education opportunistically announced an all-scrip takeover offer for AFJ of 1 GEM share per 4.61 AFJ shares; the struggling iron ore producer Atlas Iron (AGO -70.8%) resumed trading after being suspended for several months; pleasing the market was retailer Pacific Brands (PBG +31.3%) Baillieu Holst Limited SPS Managed Portfolios Page 2

3 upgrading its FY15 EBIT guidance to $63-$65 million from previous guidance of $57-$63 million; gold producer Regis Resources (RRL +20.4%) pleased the market after it announced a buyback of up to 5% of shares over the next year, as well as recommencing its dividend; M&A chatter continued with Asciano (AIO +22.3%) following on from Toll Holdings within the sector. AIO received a $9.05 per share takeover from Canadian based Brookfield Infrastructure Group; Energy Developments (ENE +8.2%) entered into a Scheme Implementation Deed under which it is proposed that DUET Group will acquire all ENE shares at $8.00 cash per share. DUE announced a $1.67 billion equity raising to fund the acquisition; Echo Entertainment Group (EGP +15.1%) has been selected to build a new casino on Australia s north-east coast, defeating rival Crown Resorts. EGP will partner with Hong Kong based Chow Tai Fook Enterprises and Far East Consortium International in developing the casino which will include more than 1,100 hotel rooms, 2,000 apartments, a sky deck and 50 restaurants and bars. In model stock news for this month: the banking sector was challenged as APRA placed more capital requirements for residential mortgage exposures, increasing the risk weighting to at least 25%, up from 16%. The banks collectively increased interest rates and LVR s on investment property loans to curb the growth in investor home loans. All major banks were higher this month with Westpac Banking Corp (WBC +8.4%) posting the biggest gains and National Australia Bank (NAB +4.4%) next best; Automotive Holdings (AHG +10.3%) acquired three Mercedes-Benz passenger and van dealerships in Perth for approximately $58 million and is expected to be earnings accretive. AHG also entered into an agreement to sell the Covs Parts business to GPC Asia Pacific estimated at $43 to $45 million; Transurban (TCL +7.2%) reported strong June quarter figures with toll revenue up 17% to $335 million when compared to the previous corresponding period. The Sydney portfolio of roads produced its eight consecutive quarter of double digit growth at 12%; Total traffic for June at Sydney Airport (SYD +12.7%) increased 2.1% on the previous corresponding period, as it welcomed nearly 19 million passengers through Sydney Airport during the first half of 2015 and more than 3 million in June. Domestic passengers grew by 1.7% and international passengers by 2.8% for June; and briefly elsewhere, Investa Office Fund (IOF +4.2%) secured a 31% premium to the prior book value on the sale of 383 La Trobe Street, Melbourne for $70.7 million; new inclusion Orora (ORA +11.5%) announced the sale of its former carton board mill site in Petrie, QLD to Moreton Bay Regional Council for a total consideration of $50.5 million, with the total profit to be approximately $10 million; Telstra Corporation (TLS +5.7%) has plans to increase investment in its mobile network by more than $500 million over the next two years; Wesfarmers (WES +8.8%) announced a 15 percent decrease in its coal prices quarter on quarter. Baillieu Holst Limited SPS Managed Portfolios Page 3

4 Portfolio revisions: Changes to the squad Australian Foundation Investment Company (AFI) removed: we exit our position in AFI as it approached a near 5 percent premium to its NTA. It outperformed the market through the period of weakness and leading into its dividend. We took advantage of this, locking in some profits whilst it trades at the top end of its range. Australia and New Zealand Capital Notes (ANZPD) removed: with the hybrids holding up relatively well through the recent weakness, we take the opportunity to exit. We expect plenty of issuances over the coming period due to the regulatory capital requirements which will create share price volatility as investors shuffle positions. We look for opportunities through the upcoming reporting season. Crown Resorts Subordinated Debt Notes (CWNHA) removed: refer to ANZPD above. Orora Limited (ORA) included: with ORA trading at a steep discount to AMC, we enter this well managed, defensive company. It has growth and upside potential through US growth opportunities, leverage to the US economy and falling AUD. Comfortable buying ORA through recent weakness leading into reporting season. Village Roadshow (VRL) included: we enter VRL again due to a strong outlook in films over the next 18 months (Star Wars, Mad Max and The Hunger Games, to name a few). We have confidence around earnings and the result and are hoping for a better summer this year to showcase Sydney s Wet n Wild. The lower AUD should see continual momentum in the stock assisting the tourism industry. Sector positions Banks: Maintained overweight position Other Financials: Reduced exposure, currently underweight (see above for stock-specific changes) Consumer: Increased exposure, currently overweight (see above for stock-specific changes) Other Materials: Increased exposure, currently overweight (see above for stock-specific changes) Telecommunications: Maintained overweight position General Industrials: Maintained overweight position Property: Maintained overweight position Hybrids: exited positions from portfolio (see above for stock-specific changes) Cash: Cash levels increased throughout the month Baillieu Holst Limited SPS Managed Portfolios Page 4

5 FIG.2: CURRENT AUSTRALIAN EQUITIES INCOME SPS MANAGED PORTFOLIO Analyst Rating Portfolio Weight Market Weight Relative Banks 30.3% 28.2% 2.1% ANZ Banking Group Hold Commonwealth Bank Hold National Australia Bank Buy Westpac Bank Hold Energy 0.0% 5.0% -5.0% Other Financials 8.4% 8.8% -0.5% Diversified United Investment N/A Suncorp Group Buy Consumer 8.8% 12.1% -3.3% Automotive Holdings Hold Village Roadshow Buy Wesfarmers Hold Health Care 0.0% 6.8% -6.8% Utilities 0.0% 2.2% -2.2% Other Materials 7.5% 4.9% 2.6% Orora Limited Buy Pact Group Holdings Hold Telcos 8.7% 6.1% 2.6% Telstra Corporation Hold General Industrials 9.2% 7.8% 1.4% Transurban Group Buy (consensus) Sydney Airport Hold Property 8.6% 8.1% 0.5% Investa Office Fund Hold Stockland Hold Cash 18.5% 0% 18.5% 100.0% Updated: 31 July 2015 Baillieu Holst Limited SPS Managed Portfolios Page 5

6 Results of the Australian Equities Income SPS Managed Portfolio For the month of July, the Australian Equities Income Portfolio posted a total return (excluding fees) of percent compared with a percent for the ASX 200 All Industrials Accumulation Index. FIG.3: INVESTMENT PERFORMANCE To 31-Jul-15 1 Mth 3 Mths 6 Mths 1 Year 2 Years 3 Years Since Incep. Australian Equities Income SPS Managed Portfolio ASX 200 All Industrials Accumulation Index 4.51%* 2.19%* 2.59%* 8.79%* 14.04%* 17.30%* 15.70%* 5.57% 1.13% 5.43% 13.07% 15.08% 20.04% 15.43% Our Income Portfolio posted a total return (ex fees) of percent for July compared with the ASX 200 All Industrials Accumulation Index s percent NB: Perf. figures reflect when invested through SPS to avoid time delay. Inception date = 01-Jul-10, *ex fees Over the past 12 months, the Australian Equities Income Portfolio posted a total return (excluding fees) of percent compared with a percent for the ASX 200 All Industrials Accumulation Index. Since inception, the returns have been percent and percent respectively. FIG.4: VALUE AT $100 INVESTED AT FUND S INCEPTION Baillieu Holst Limited SPS Managed Portfolios Page 6

7 This document has been prepared and issued by: Baillieu Holst Ltd ABN Australian Financial Service Licence No Participant of ASX Group Participant of NSX Ltd Analysts stock ratings are defined as follows: Buy: The stock s total return is expected to increase by at least percent from the current share price over the next 12 months. Hold: The stock s total return is expected to trade within a range of ±10-15 percent from the current share price over the next 12 months. Sell: The stock s total return is expected to decrease by at least percent from the current share price over the next 12 months. Disclosure of potential interest and disclaimer: Baillieu Holst Ltd (Baillieu Holst) and/or its associates may receive commissions, calculated at normal client rates, from transactions involving securities of the companies mentioned herein and may hold interests in securities of the companies mentioned herein from time to time. Your adviser will earn a commission of up to 50% of any brokerage resulting from any transactions you may undertake as a result of this advice. When we provide advice to you, it is based on the information you have provided to us about your personal circumstances, financial objectives and needs. If you wish to rely on our advice, it is important that you inform us of any changes to your personal investment needs, objectives and financial circumstances. If you do not provide us with the relevant information (including updated information) regarding your investment needs, objectives and financial circumstances, our advice may be based on inaccurate information, and you will need to consider whether the advice is suitable to you given your personal investment needs, objectives and financial circumstances. Please do not hesitate to contact our offices if you need to update your information held with us. Please be assured that we keep your information strictly confidential. No representation, warranty or undertaking is given or made in relation to the accuracy of information contained in this advice, such advice being based solely on public information which has not been verified by Baillieu Holst Ltd. Save for any statutory liability that cannot be excluded, Baillieu Holst Ltd and its employees and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Baillieu Holst Ltd assumes no obligation to update this advice or correct any inaccuracy which may become apparent after it is given. The Lonsec Rating assigned February 2014 presented in this document is published by Lonsec Research Pty Ltd ABN AFSL The Rating is a class service (as defined in the Financial Advisers Act 2008 (NZ)) or is limited to General Advice (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s). In New Zealand it must only be provided to wholesale clients (as defined in the Financial Advisers Act 2008 (NZ)). Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold Baillieu Holst Ltd product(s), and you should seek independent financial advice before investing in this product(s). The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria. For further information regarding Lonsec s Ratings methodology, please refer to our website at: Baillieu Holst Ltd ABN Australian Financial Service Licence No Participant of ASX Group Participant of NSX Ltd Melbourne (Head Office) Address Level 26, 360 Collins Street Melbourne, VIC 3000 Australia Postal PO Box 48, Collins Street West Melbourne, VIC 8007 Australia Phone Facsimile melbourne@baillieuholst.com.au Bendigo Office Address Cnr Bridge & Baxter Streets Bendigo, VIC 3550 Australia Postal PO Box 40 North Bendigo, VIC 3550 Australia Phone Facsimile bendigo@baillieuholst.com.au Geelong Office Address: 16 Aberdeen Street Geelong West Vic 3218 Postal PO Box 364 Geelong Vic 3220 Australia Phone Facsimile geelong@baillieuholst.com.au Newcastle Office Address Level 1, 120 Darby Street Cooks Hill, NSW 2300 Australia Postal PO Box 111 The Junction, NSW 2291 Australia Phone Facsimile newcastle@baillieuholst.com.au Perth Office Address Level 10, 191 St Georges Terrace Perth WA 6000 Australia Postal PO Box 7662, Cloisters Square Perth, WA 6850 Australia Phone Facsimile perth@baillieuholst.com.au Sydney Office Address Level 18, 1 Alfred Street Sydney, NSW 2000 Australia Postal PO Box R1797 Royal Exchange, NSW 1225 Australia Phone Facsimile sydney@baillieuholst.com.au Baillieu Holst Ltd ABN Page 7