Investment Matters

Riding the rebound

Market update

The ASX continued its recovery, ending the week (to Thursday) 0.5% higher.  Since the beginning of April, the market, including dividends, has increased in value by 7%. 

Your Australian Equities sub-portfolio has outperformed over this time, returning about 11%.   This reflects the rebalancing that has occurred over the past six months. 

Through the rebalancing we have undertaken and investing the extra cash, you have gained additional exposure to the broader market. We expect performance during a recovery to be strong.

Despite this, we remain cautious. We have held some cash in reserve for future opportunities, which we expect to be revealed over the next 3-6 months.

A broader, more diversified portfolio (Australian Equities Portfolio)

It is pleasing to see the seeds planted during your portfolio’s rebalancing are beginning to bear fruit.  Through the process of rebalancing, we have increased the portfolio’s exposure to larger, more liquid companies.

These companies were cheaper than the broader market and have outperformed the market during the recovery in April.

Leverage (not in the borrowing sense) to movements in the broader market is referred to as “beta”. Your portfolio has benefited from a significant improvement in its “beta” as a result of the rebalancing.

Some stocks, however, have not participated in the broader recovery to the same degree.  These include companies which have been oversold due to near term uncertainty as well as sectors where the market is still tentative.

As conditions improve, these companies are expected to provide further leverage to a recovery.

We remain cautious, yet opportunistic

Improving data concerning CV-19 as well as central bank and government intervention have subdued investors’ concerns and prompted a recovery in financial markets. However, there are still many unknowns. We, therefore, continue to hold meaningful levels of cash to capitalise on further opportunities.

Over the past week, we have seen several companies come to market looking to raise additional capital as a buffer. This has provided opportunities for additional investment.

We have taken advantage of this, adding to several holdings including QBE, Southern Cross Limited, Webjet and Centuria Industrial Property (in the Property sub-portfolio).  These add to an earlier placement in Carbon Revolution.

Opportunities have appeared, as companies look to raise capital
im117thSource: Wilsons Advisory
Overall cash and other sub-portfolios (Alternatives, Income securities and Property)

Your overall cash holding reflects the combined cash holding of all sub-portfolios. This, of course, will differ depending on your asset mix.

As mentioned, some of this cash is attributable to the Australian Equities Portfolio. However, a large portion of cash, in many instances is attributable to other sub-portfolios, predominantly Property and Alternatives.

Securities in the Income securities and Alternative securities sub-portfolios continue to be actively monitored. Cash has been held in reserve, particularly in the Alternatives sub-portfolio, in anticipation of opportunities in the future. These asset classes, by their nature, have been slower to reflect the impact of the virus. We expect additional investments to appear over the next 3-6 months as the impact of the virus creates new opportunities.

The Property securities sub-portfolio has seen several new additions. These have been at prices we see as conservative, which reflect the potential disruption caused by the lockdown. Broadly, we remain cautious: office and retail property are likely to be impacted both in the short and longer-term. We are more optimistic about industrial and suburban property, however, valuations broadly remain unattractive.

We, therefore, have only looked to buy where we have enough of a margin of safety and hold cash for further opportunities.

Summary

In April your Australian Equities portfolio has ridden the rebound, outperforming significantly. This reflects the rebalancing that has occurred over the past six months.

The portfolio now has additional exposure to movements in the broader market. We expect performance during a recovery to be strong.

However, we continue to remain cautious. Cash is being held in reserve for future opportunities, which we expect to be revealed over the next 3-6 months.