Diversified Shares Fund

Transcription

1 December 2016 Diversified Shares Fund About Diversified Shares Fund Rated as Investment Grade by Lonsec. Australian investments generally have a market capitalisation greater than 200th ranked stock listed on the ASX. Has outperformed its benchmark after fees since inception. Only consists of companies that have passed Australian Ethical s positive and negative screens, based on the Australian Ethical Charter. Certified by the Responsible Investment Association Australasia. Performance Returns 1 month 3 months 1 year 3 years 5 years 10 years Since Inception (%) (%) (%) (% p.a.) (% p.a.) (% p.a.) (% p.a.) Fund (Retail)* Melded Benchmark~ Relative Performance Fund (Wholesale)^ n/a n/a 16.2 Melded Benchmark~ n/a n/a 16.9 Relative Performance n/a n/a -0.7 Alternative benchmarks ASX 200 Industrials ASX MSCI Global Climate n/a MSCI World ex Australia * Inception Date (Retail): 3 November 1997 ^ Inception Date (Wholesale): 23 January 2012 ~ AEDSF melded benchmark is constructed based on strategic asset allocation. Current composition is 75% ASX 200 Industrials and 25% MSCI Global Climate. Past performance is not an indicator of future performance. australianethical.com.au 1

2 Investment Commentary The quarter started nervously as investors awaited a decision on interest rates by the US Federal Reserve and the outcome of the US presidential election in November. With expectations rising that the US Fed would raise interest rates before the end of the year bond yields rallied, equities fell and the US$ strengthened. The Australian equity market, proxied by the S&P/ASX 200 Index, fell by almost 2% which may have been due to falling expectations for further interest rate cuts underpinned by surging prices for the country s key commodity exports of iron ore and coal and a stronger than expected inflation reading for the third fiscal quarter. Moving into November the big development was the surprise win by Donald Trump in the US Presidential election. Whilst the initial reaction to this event was negative it quickly turned course as market participants factored in Trump s high spending, pro-inflation policy pronouncements. The US S&P 500 gained c4% whilst the S&P/ASX 200 rose 3% with a particularly strong performance from the financial sector. The rally in risk assets continued into December as investors continued to reassess their outlooks for global growth in the wake of the Trump election win. This strong rally in equities over the last two months of the year delivered a 4.2% gain for the S&P/ASX 200 Index over the December quarter. The Fund underperformed its melded benchmark by 4.8% during the December quarter. The Fund posted a gain of 0.5% (after fees) for the December quarter and underperformed the benchmark return of 5.3%. Most of the underperformance was attributable to the Financial sector following strong performances by the large banks. Underweight positions in ANZ, Top Holdings Westpac Banking Corporation 1.9% Telstra Corporation 1.8% CSL 1.8% Brambles 1.6% Suncorp Group 1.6% Insurance Australia Group 1.6% AMP 1.5% QBE Insurance Group 1.5% Resmed Inc. 1.5% Ramsay Health Care 1.5% Westpac, Commonwealth Bank and National Australia Bank together accounted for 4.1% of the portfolio s underperformance relative to the index. We were able to offset some of this deficit through overweight positions in the insurers including QBE, Covermore Group, Genworth Mortgage Insurance, health insurer Medibank and Insurance Australia Group. Overweight positions in the regional banks (Bendigo and Adelaide Bank, Bank of Queensland) also helped mitigate the damage. The Healthcare sector, the Fund s largest overweight at a sector level also had a challenging month. An earnings downgrade from medical device company Sirtex resulted in a 55% decline in the shares, whilst hospital operator Healthscope warned that activity levels during the month of September had been horrendous sending the shares down by 25%. The Telecommunications sector also weighed heavily on portfolio performance during the December quarter underperforming the index return by 0.74%. This result was essentially attributable to two stocks, Vocus and TPG australianethical.com.au 2

3 Telecom. After a sharp fall in September following the release of a disappointing outlook statement with its annual result TPG Telecom continued to decline as investors reassessed their view of the company s prospects in an NBN world. TPG has enjoyed high margins operating its own consumer broadband network to date, however in an NBN world the playing field is levelled with all competitors accessing an independent network (NBN) on identical terms. Vocus has fallen out of favour with investors following a series of stumbles including the founder and chairman selling 75% of his equity stake, the CFO resigning and the earnings outlook being downgraded. The only other sector to deliver a negative contribution was utilities however this was primarily due to a strong rally in energy retailer AGL, a stock we are precluded from investing in due to ethical concerns. On the positive side, the materials, and consumer staples sectors delivered solid contributions to performance. Within the materials sector, the fund s holding in metal recycler Sims Metal Management performed particularly well with the shares rising 40% during the period. Sims management has focused on reducing the business s break-even point with respect to volumes which positioned the company well to exploit the recent pickup in metal volumes and prices. Within the consumer staples sector it was a similar story with a single stock contributing most of the outperformance. In this case it was index heavyweight Wesfarmers, which we do not own for ethical reasons that delivered most of the benefit. australianethical.com.au 3

4 Our Ethical Approach Australian Ethical is a specialist ethical fund manager. By investing responsibly in wellmanaged ethical companies, we believe we can deliver competitive financial performance to our clients and positive change to society and the environment. Significant Performers (For the quarter) Best Total Return Contribution Worst Total Return Contribution QBE Insurance Group Sims Metal Management Computershare 33.7% 0.5% Sirtex Medical -55.1% -0.6% 39.8% 0.4% Vocus Communications -37.9% -0.4% 20.7% 0.3% Healthscope Ltd % -0.4% The performances are ranked based on the effect within the Fund, rather than on the percentage movement within the price. Dividends paid are taken into account. Past performance is not an indicator of future performance. Asset Allocation Cash and cash equivalent 5.3% International Equity 23.7% Large Cap 45.1% Small Cap 25.9% Sector Allocation Telecommunication Services 7.1% Utilities 5.2% Cash 5.3% Consumer Discretionary 8.9% Consumer Staples 1.8% Property Trusts 11.0% Financial-X-Property Trusts 21.4% Materials 1.0% Information Technology 12.3% Industrials 9.5% Health Care 16.5% australianethical.com.au 4

5 Portfolio Manager Key Information Responsible entity: Minimum initial investment: Distribution: APIR: Australian Ethical Investment Ltd $1,000 (retail) $25,000 (wholesale)^ Six-monthly AUG0004AU (retail) AUG0019AU (wholesale) ARSN: Mason Willoughby-Thomas Mason has over 13 years experience in the financial services industry. Contribution fee: Establishment fee: Withdrawal fee: Termination fee: Performance fee: Indirect cost ratio: 2.20% pa (retail) 0.95% pa (wholesale) Buy sell spread: 0.15% Lonsec rating: Platforms: Fund size: Objective: Investment Grade AXA North, BT Wrap, Colonial FirstWrap, Emerald, Freedom of Choice, Macquarie, Netwealth, Oasis, Spectrum (SMF) $ Million To provide long-term growth through investment in listed companies on Australian and international stock exchanges that meet the Australian Ethical Charter. For more information Phone enquiries@ australianethical.com.au Web australianethical.com.au Structure: The Fund is an open-ended public unit trust. A full explanation of all of the fees and costs that you may be charged for investing in the Fund is provided in the Fund s Product Disclosure Statement available from our website. ^ Direct investors must maintain a minimum $500,000 investment across Australian Ethical s managed funds and a minimum of $25,000 in the Diversified Share Fund. Why invest ethically? Aligning values with investments You probably already understand the importance of having a portfolio that matches your appetite for risk, but equally, if not more important, is holding a portfolio that reflects your values. For example, if you value the provision of fair working conditions (and no child labour) then it s important to invest in funds that negatively screen out stocks on this basis. Portfolio diversification Ethical funds in particular, often invest in stocks that are not covered by many fund managers and brokers. Good for the world Your investments can help build a new low-carbon economy, fund medical and technology breakthroughs, efficient transport and more. Units in the managed funds are offered and issued by Australian Ethical Investment Ltd ABN , AFSL Our P roduct Disclosure Statements (PDS) and Financial Services Guide are available from our website or by phone and should be considered before making an investment decision. This information has been prepared without taking account of your individual investment objectives, financial situation or needs. Before acting on it, you should consider obtaining financial advice that is tailored to suit your personal circumstances. Australian Ethical is a registered trademark of Australian Ethical Investment Ltd. australianethical.com.au 5