Post on 26-Jan-2021
November Market Update
Snapshot of the month
During November, the ASX300 Accumulation index lost -3.2% while the MSCI AC World Index (US$) was up 1.5%
On a trade-weighted basis the A$ decreased by 1.7%
Within fixed income the Bloomberg AusBond Composite Index gained 1.3%
Tactical asset allocation detracted from performance except for the “Australian Equities” asset allocation model
Within Australian equities stock selection added to relative performance but sector positioning detracted from performance versus the index
Market performances (1 Month bar – LHS; 12 Month line - RHS)
1 Month sector and security performances
-10%
-5%
0%
5%
10%
-2.5%
-1.5%
-0.5%
0.5%
1.5%
2.5%
All Countries (ACWI) Developed Markets (DM) Emerging Markets (EM)
November
ACWI
DM
EM
In US$
-35%
-25%
-15%
-5%
5%
15%
25%
-3.5%
-2.5%
-1.5%
-0.5%
0.5%
1.5%
2.5%
ASX 300 ACWI Property Bloomberg Ausbond
November
ASX 300
ACWI
Property
Bloomberg Ausbond
In AU$
-14.0% -12.0% -10.0%
-8.0% -6.0% -4.0% -2.0% 0.0% 2.0%
-30.0% -20.0% -10.0%
0.0% 10.0% 20.0%
General Market Overview
Global equity markets enjoy broad based gains Global equity markets strengthened in November with the S&P500 index ending the month 2.5% higher, on
the back of strong US earnings and economic data. In Europe and Japan, gains were even stronger with the
Euro Stoxx 50 up 4.4% and the Nikkei 225 up 6.4% on expectations of further easing by the European Central
Bank and Japan’s accommodative fiscal and monetary programs.
Australian equities underperform global peers The Australian equity market (ASX 300 Accumulation Index) underperformed against its global peers closing
the month down -3.2%, driven mainly by the late month fall in commodity prices. Energy and Mining &
Materials were the sectors most affected by the decline in oil and iron ore prices, down -13.2% and -9.0%,
respectively. Other sectors also underperformed their global counterparts. In particular, weakness in food
retailers saw even the more defensive sectors like Consumer Staples feel the pinch, falling -8.3% in the month.
Fixed income positive on lower yields and slightly wider spreads Following the trend from last month, bonds performed reasonably well in the month of November. The main
driver of the outperformance was the greater duration (interest rate risk) of the Australian Commonwealth
Government bonds. A slight widening of credit spreads also contributed to the Government bonds
outperformance against Semi-Government and Corporate bonds. Bond yields fell significantly during the last
week of the month as commodity prices declined, helping add to monthly returns.
Aussie dollar trends lower The AUD depreciated against most major world currencies down -1.7% on a trade-weighted basis and -3.3%
against a strong USD. The first half of the month saw the AUD/USD bounce up from a decline earlier in the
week. However, weaker iron ore and oil prices saw declines accelerate over the second half of the month.
Energy and Industrial metals weaker but precious metals rebound Spot Brent crude ended the month at its lowest level in five years falling -18.6%. The November fall in Brent
crude signifies the biggest monthly drop since December 2008 slipping below $66 a barrel.
The benchmark spot iron price was down -10.4% for the month. The rapid increase in supply has been the
main reason for the weakness in prices coupled with lack of demand as China’s steel production experiences
moderating growth.
Base metals weakened as measured by the LME base metals index, falling -3.2%. Spot gold regained footing from last month, dropping only a slight 0.5% on a stronger USD, and continuing physical demand. Sources: CBA Global Markets Research, JP Morgan, UBS
Portfolio Update
Top 10 Australian equity holdings relative weightings (LHS) and forecast gross yield (RHS)
Relative weights are based on the Model Portfolio - actual weightings may differ across client portfolios. Gross yield based on Bloomberg consensus estimates including franking credits and assuming nil tax rate
In terms of our model portfolio the largest overweight positions versus the index at month-end were in Macquarie, Rio Tinto and Asciano. The largest underweight positions were in Commonwealth Bank, Westpac and Wesfarmers (not owned). Overall stock selection added to relative performance, with the largest contributors to & detractors from performance being:
Overweight Underweight
Contributors Newcrest Perpetual Resmed
Woolworths Santos
Origin Energy
Detractors Fairfax Orica
Woodside Petroleum
Commonwealth Bank CSL
Amcor
Portfolio Sector Allocations
The Financials sector exposure includes A-Reits
Sector allocations detracted from relative performance, driven by the overweight position in Materials and Energy.
-2% -1% 1% 2% 3% 4% 5%
ANZ
BHP
NAB
Woodside
Brambles
QBE
ASX
Asciano
Rio Tinto
Macquarie
0% 3% 5% 8% 10%
0%
10%
20%
30%
40%
50% Portfolio Sector Weight
Index Sector Weight
Portfolio Update Continued
International
During November there were no changes to the international allocations within the model portfolios. The effective geographic and sector exposures are detailed below:
The iShares Global 100 (IOO), iShares MSCI EAFE (IVE) and Macquarie Asia New Stars No1 (“MANS”) Fund returned 7.66%, 5.42% and 4.01% respectively (all in A$), outperforming the US$ denominated international benchmark (i.e. MSCI World ex-Australia) which gained 2.12%. All holdings were positively impacted by the weak A$ due to being currency unhedged. IVE which seeks to track the results of an index composed of large- and mid-capitalisation developed market equities, excluding the U.S. and Canada, performed well as roughly 69% combined allocation to the outperforming Japanese, U.K. and European markets. In a region which saw smaller companies in particular sell-off during the month, the MANS Fund has continued to deliver solid relative outperformance due to strong stock selection. Key contributors to performance including holdings in China Galaxy Securities (a Chinese securities broker), China Taiping Insurance (a Chinese insurance company) and BBMG Corporation (a Chinese cement company). The portfolio continues to maintain an overweight position in Hong Kong and China. Given the stimulus announcement from the People’s Bank of China and the positive outlook in Asian consumption, the Fund has decided to further increase the allocation to China within the portfolio.
Fixed Income
The Macquarie Income Opportunities Fund (“MIO”), Russell Australian Select Corp Bond ETF (RCB) and Perpetual W/sale Dynamic Fixed Income Fund (“PDFI”) returned -0.21%, 0.25% and 0.75% respectively versus the benchmark (i.e. Bloomberg AusBond Composite 0-5 Yr) return of 0.63%. Unlike both RCB and PDFI which are exposed to interest rate movements and hence benefitted from yields drifting lower during the month, MIO is primarily a credit focussed fund which was negatively impacted by the slight widening of credit spreads. Strong supply and poor performance in the energy sector also added to the result. As has been the case in recent months, MIO continues to have no exposure among the high yield and emerging markets given the stretched valuations in these sectors.
29%
28%
43%
Americas
Greater Europe
Greater Asia
5%
14%
16%
7%
7% 14%
11%
14%
12%
Materials
Cons Discretionary
Fins Ex-Reits
Energy
Industrials
IT
Cons Staples
Health Care
Other
Portfolio Activity and Stock News
Portfolio activity
There were no outright sales or new additions to our model portfolios during the month. Please note that individual client accounts may be rebalanced periodically despite no changes to the model portfolios due to client specific circumstances. Before any rebalancing is executed we do consider both the % deviation of a client’s holding from the model allocation as well as the absolute dollar amount of the difference to avoid unnecessary small trades.
Stock news
Company Announcement
Asciano An update was provided at the AGM. There was no material new information since 1Q15 volume update last month. AIO’s underlying markets remain subdued with cost savings helping to drive margin expansion. Increased dividend yield expected from FY15
Brambles The 1Q15 trading update saw constant currency growth guidance of 7-9% (excluding the Ferguson acquisition), the same as issued at the FY14 result in August 2014. Against this target, sales growth last quarter was a touch weak primarily in Containers, but management expect a solid 2H15 based on organic growth, contract wins and a weak prior comparative period.
Fairfax A trading update was provided at the AGM with FY15 year-to-date overall group revenues for continuing businesses down 2% to 3%, broadly in-line with market consensus. Revenue growth in both Domain and Events is strong, but the bulk of the business (Community Media, metro publishing, NZ media & radio) still face tough operating conditions though Metro print advertising declines continue to moderate
Orica The company released its FY14 result & announced the sale of its chemicals division. EBIT was down -4% to $929.7m with the negative impact from lower Mining Services volumes (-$44m) & net prices (-$35m), transformation costs (-$39m) and reduced Chemicals contribution (-$27m) partly offset by forex gains (+$24m), profit on asset sales (+$23m) and efficiency gains (+$69m). The offshore businesses (47% of FY14 EBIT) are key to future growth with Australian explosives earnings in FY15 facing pricing pressure amid tough coal markets in particular. The Chemicals sale makes capital management a very real possibility, but cost saving & efficiency benefits ($200-250m pa from FY16), may need to be shared with customers to protect market share
Westfield The 3Q14 trading update saw no comment on earnings expectations, with the update focused on recent retail sales and the development pipeline. While specialty sales growth softened over the quarter it remains reasonable, occupancy is slightly improved and releasing spreads remain solid. Development activity is tracking to plan.
Sources: Company announcements, J.P. Morgan, Macquarie Wealth Management, Morgan Stanley, UBS
Disclaimer
This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Services Pty Ltd (Elston Partners) ABN 52 130 772 495 AFSL 325 252. Although every effort has been made to verify the accuracy of the information contained in this material, EP Financial Services Pty Ltd, its officers, representatives, employees and agents (“Elston Partners”) disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.