Lonsec Diversified Direct Model Portfolios

Transcription

1 Lonsec Diversified Direct Model Portfolios ISSUE DATE Performance review Model portfolios RETURNS TO 30 SEP 2014 SECURE DEFENSIVE CONSERVATIVE BALANCED GROWTH HIGH GROWTH 3 MONTHS (%) MODEL PORTFOLIO BENCHMARK PORTFOLIO EXCESS RETURN MONTHS (%) MODEL PORTFOLIO BENCHMARK PORTFOLIO EXCESS RETURN YEAR (%) MODEL PORTFOLIO BENCHMARK PORTFOLIO EXCESS RETURN YEARS (%) MODEL PORTFOLIO BENCHMARK PORTFOLIO EXCESS RETURN SINCE INCEPTION (%PA) - JAN 2011 MODEL PORTFOLIO BENCHMARK PORTFOLIO EXCESS RETURN Portfolios are rebalanced monthly to maintain model portfolio weights. Physical portfolio results will differ depending on cash levels, inception date, fees and adherence to the model portfolio weights. Past performance is not a reliable indicator of future performance. * Peer Group Benchmark based on Financial Express UT Peer Group Multi-Asset Indices. P 1

2 Overview of the Quarter The Australian equity market experienced a subdued quarter, with the S&P/ASX 300 Accumulation Index edging 0.9% higher for the period. Energy stocks were the beneficiaries of a jump in the oil price after tensions arose in the Middle East, while retail stocks felt the brunt of a tough Federal budget which included spending cuts, tax increases and higher charges for services. Global equities outperformed the local market in the June quarter, as the MSCI World ex-australia gained 3.0%, with all the major regions finishing in the black. Quantitative easing took a back seat this quarter, with the market turning its focus on a stream of positive economic readings out of the US following a chilly winter hampering first quarter readings. In Europe, the central bank announced further initiatives to tackle the low inflationary environment. Investors continued their preference for emerging market exposure, preferring faster growing economies of India and Southeast Asia as China attempts to reposition itself for its next phase of growth. The Australian listed property sector delivered a very strong return of 9.2% over the three months to June, the strongest quarterly return in the past year. The strong performance from the sector continues to be underpinned by falling bond yields. With cost of capital and pricing remaining supportive, M&A and corporate activity has also been a tailwind to performance. Global property securities also delivered very strong returns, with the index rising 8.0%, as the sector continued to be influenced by attitudes to monetary stimulus and movements in bond yields. Australian fixed interest performed well over the June quarter, rising 3.1%, with a key influence being the release of the Fiscal budget in May, as it became apparent that a rate hike by the RBA was no longer likely in the immediate future. International fixed interest markets on aggregate continued to perform well over the course of the June quarter (+2.6%), a result that was widely unexpected by the public towards the beginning of Credit markets continued their stellar run throughout the quarter, with both Investment Grade and High Yield credit posting positive returns. Overview of the Year Equities outperformed the other major asset classes over the 12 months to June, with Australian equities up 17.3% and global equities gaining 20.4% (in Australian dollar terms). Factors driving this strong performance included very low interest rates, a weak US dollar, government spending, increased productivity and reasonable economic growth, although geopolitical instability and weakening sentiment have muted recent performance. Regionally, the US remained the best performing region in local currency terms, returning 24.2%, while Japan was the weakest of the developed markets, rising by only 12.0%. Australian and global REIT markets returned 14.3% and 22.7% respectively for the year. The relative underperformance of REITs relative to equities in the latter half of 2013 reflected a broad based sell down of yield sensitive stocks in favour of stocks more closely correlated to economic trends, although this trend strongly reversed in Australian and global bonds returned 6.9% and 8.4% respectively for the year. Bond yields remain sensitive to developments in the US regarding the easing of QE, although to date yields have not risen as far as once feared. In addition, in recent months the 'flight to safety' effect has boosted global bond returns as volatility rose on concerns over Russian intervention in the Ukraine, fears over a Chinese credit bubble and instability in the Middle East. Australian bond yields remain higher than that of developed markets such as the US, Germany and the UK. The Diversified Direct model portfolios generated broadly positive absolute returns for the year while relative returns have been mixed. The Diversified Direct portfolios recorded another quarter of positive absolute returns, primarily driven by global equities and property. Relative returns were more mixed, with the strongest outperformance coming from the Lonsec Core Australian Equities Portfolio. P 2

3 Australian equities - fund contributions LONSEC AUSTRALIAN EQUITY CORE MODEL PORTFOLIO VANGUARD MSCI AUSTRALIAN SMALL COMPANIES INDEX S&P/ASX 300 ACCUMULATION INDEX Australian equities slowed for a third consecutive quarter and entered negative territory, with the index falling 0.6%. Manager selection was mixed, as the Lonsec core portfolio outperformed the market, while the Vanguard ETF underperformed the ASX300 but performed in line with its small cap benchmark. Lonsec Australian Equity Core Model Portfolio The Lonsec Australian Equity Core Model Portfolio outperformed the benchmark over the September quarter, consistent with the Manager's defensive approach (due to the Manager's yield with growth top-down theme), which aims to outperform in falling markets. There were no changes to the portfolio over the quarter. The Manager's investment themes are: low growth and low real interest rate environment to persist; global population growing, ageing and becoming more mobile; and Asian growth in transition. The portfolio contains 14 stocks which have passed the Manager's 'quality at a reasonable price' criteria and all have a high probability of generating earnings growth, over the short to medium term. The portfolio is expected to provide an attractive combination of yield and growth, with less volatility than the market. The Manager also expects to outperform the benchmark, over the medium to long term. Global equities - fund contributions VANGUARD ALL-WORLD EX-US SHARES INDEX ETF VANGUARD US TOTAL MARKET SHARES INDEX ETF MSCI WORLD EX AUST ACC IND GROSS DIV A$ Global equities were mildly positive over the quarter, and a weakening Australian dollar boosted domestic investor returns to 5.5% for the period. Fund selection was mixed against the broader MSCI benchmark, however both ETFs broadly matched their respective regional benchmarks, in keeping with Vanguard's passive approach. VANGUARD ALL-WORLD EX-US SHARES INDEX ETF The Vanguard All-World ex-us Shares Index performed in line with its benchmark over the September quarter, in keeping with the Fund's passive approach. VANGUARD US TOTAL MARKET SHARES INDEX ETF The Vanguard US Total Market Shares Index performed in line with its benchmark over the September quarter, in keeping with the Fund's passive approach. VANGUARD MSCI AUSTRALIAN SMALL COMPANIES INDEX The Vanguard MSCI Australian Small Companies Index ETF underperformed the ASX300 over the September quarter, but performed in line with its small cap benchmark. P 3

4 Property - fund contributions VANGUARD AUSTRALIAN PROPERTY SECURITIES INDEX ETF S&P/ASX 300 PROPERTY TRUSTS ACCUM INDEX Domestic and global listed property markets were mixed against broader equity markets for the quarter, with the domestic index gaining 1.2% and the global market returning - 1.3%. Property fund selection was negative as the Vanguard ETF underperformed the benchmark for the quarter (based on close price). VANGUARD AUSTRALIAN PROPERTY SECURITIES INDEX ETF The Vanguard Australian Property Securities Index ETF underperformed the benchmark over the September quarter (based on its closing price), however over the longer term has matched the index. Income assets - fund contributions AGL SUBORDINATED NOTES ANZ SUBORDINATED NOTES ISHARES UBS COMPOSITE BOND ETF WOOLWORTHS NOTES II BLOOMBERG AUSBOND BANK BILL INDEX BLOOMBERG AUSBOND COMPOSITE 0+ YR INDEX Corporate credit spreads, particularly for lower ranking securities, widened in the quarter which contributed to increased volatility and a lower capital price for AGKHA. AGKHA closed the quarter near its yearly lows, however at the time of writing this report it is already 2% above that level, and thus is expected to perform better over the December quarter. The portfolios other two holdings - ANZHA (+0.8%) and WOWHC (+0.8%) - showed a higher level of capital stability, reflecting the strength of the underlying issuers and reasonably short term to maturity. Despite the higher volatility, the coupons on floating rate debt and hybrid securities are expected to remain relatively stable in the short term, and interest rates are likely to remain accommodative well into The portfolios' listed income securities are well placed to generate steady returns over the longer term, and now offer cash running yields of % p.a., which is attractive in comparison to the cash benchmark rate of 2.5%. AGL SUBORDINATED NOTES The AGL Subordinated Notes (AGKHA) underperformed the cash benchmark over the September quarter. ANZ SUBORDINATED NOTES The ANZ Subordinated Notes (ANZHA) outperformed the cash benchmark over the September quarter. ISHARES UBS COMPOSITE BOND ETF The ishares UBS Composite Bond Index Fund (IAF) performed broadly in line with the UBS Composite Bond Index over the September quarter. WOOLWORTHS NOTES II The Woolworths Floating Rate Notes II (WOWHC) outperformed the cash benchmark over the September quarter. P 4

5 ISSUE DATE Performance review Model portfolios RETURNS TO 30 SEP 2014 SECURE DEFENSIVE CONSERVATIVE BALANCED GROWTH HIGH GROWTH 3 MONTHS (%) MODEL PORTFOLIO PEER GROUP BENCHMARK EXCESS RETURN MONTHS (%) MODEL PORTFOLIO PEER GROUP BENCHMARK EXCESS RETURN YEAR (%) MODEL PORTFOLIO PEER GROUP BENCHMARK EXCESS RETURN YEARS (%) MODEL PORTFOLIO PEER GROUP BENCHMARK EXCESS RETURN SINCE INCEPTION (%PA) - JAN 2011 MODEL PORTFOLIO PEER GROUP BENCHMARK EXCESS RETURN Portfolios are rebalanced monthly to maintain model portfolio weights. Physical portfolio results will differ depending on cash levels, inception date, fees and adherence to the model portfolio weights. Past performance is not a reliable indicator of future performance. * SAA Benchmark based on the market indices on the following page. P 5

6 ISSUE DATE Indices used for performance comparisons and for benchmark construction: AUSTRALIAN EQUITIES S&P/ASX 300 ACCUMULATION INDEX GLOBAL EQUITIES MSCI WORLD EX AUST ACC IND GROSS DIV A$ INCOME ASSETS BLOOMBERG AUSBOND BANK BILL INDEX INCOME ASSETS BLOOMBERG AUSBOND COMPOSITE 0+ YR INDEX PROPERTY S&P/ASX 300 PROPERTY TRUSTS ACCUM INDEX The model portfolios change over time therefore performance is not calculated on a static mix of funds. Analyst Disclosure & Certification Analyst remuneration is not linked to the research or rating outcome. Where financial products are mentioned, the Analyst(s) may hold the financial product(s) referred to in this document, but Lonsec considers such holdings not to be sufficiently material to compromise the rating or advice. Analyst holdings may change during the life of this document. The Analyst(s) certify that the views expressed in this document accurately reflect their personal, professional opinion about the matters and financial product(s) to which this document refers. Date released November 2014 Analyst EMenniti Approved by LdePourbaix P 6 IMPORTANT NOTICE: This document is published by Lonsec Research Pty Ltd ABN , AFSL No (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this document. Disclosure at the date of publication: Lonsec has provided consulting advice to the Client in the preparation of this Report, and received a fee from the Client for its advice. Lonsec also receives a fee from relevant fund manager or product issuer(s) for researching financial products (using comprehensive and objective criteria) that may be referred to in this Report. Lonsec may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec services. Lonsec s fees are not linked to the financial product rating(s) outcome or the inclusion of financial products in model portfolios, or in approved product lists. Lonsec may hold the financial product(s) referred to in this document. Lonsec s representatives and/or their associates may hold any financial product referred to in this document, but details of these holdings are not known to the analyst(s). Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is a class service (as defined in the Financial Advisers Act 2008(NZ)) or 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) alone, without taking into account the investment objectives, financial situation and particular needs ( financial circumstances ) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Disclaimer: Lonsec provides this document for the exclusive use of the Client and its representatives. It is not intended for use by a retail client or a member of the public and should not be used or relied upon by any other person. Lonsec provides consulting advice in the construction of model portfolio, and approved product lists, which may be tailored to the Client s requirements. However, these model portfolios and approved product lists remain the responsibility of the Client and they may include financial product(s) that have been added at the Client s request. In addition, depending upon the frequency with which changes are accepted by the Client, they may not always reflect Lonsec s current recommendations. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by Lonsec. Financial conclusions, ratings and advice are reasonably held at the time of completion (refer to the date of this report) but subject to change without notice. Lonsec assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. Copyright 2014 Lonsec Research Pty Ltd (ABN , AFSL No ) (Lonsec). This report is subject to copyright of Lonsec. Except for the temporary copy held in a computer s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth), no part of this report may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of Lonsec. This report may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to Lonsec copyrighted material, applies to such third party content.