Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Land banking wikipedia , lookup
Financialization wikipedia , lookup
Private equity secondary market wikipedia , lookup
Beta (finance) wikipedia , lookup
Stock valuation wikipedia , lookup
Financial economics wikipedia , lookup
Global saving glut wikipedia , lookup
Investment fund wikipedia , lookup
Modified Dietz method wikipedia , lookup
Modern portfolio theory wikipedia , lookup
Australian Equities High Conviction Portfolio Performance Report – June 2017 Portfolio overview Market overview and portfolio performance Global equity markets hit all-time highs in June, although they did give back some gains towards the end of the month. This was in response to a sell-off in bonds, with several central banks indicating the possibility of decreased stimulus measures. The big political news for the month was the election result in the UK, which saw the ruling Conservative Party lose its majority. Investment bias Style neutral Designed for Investors with a medium-term investment objective focused on achieving portfolio growth with less focus on generating excess income and is prepared to accept higher volatility in pursuit of higher growth The domestic market provided a small return for the month with the S&P/ASX 200 Accumulation Index up 0.17%, but overall the 2017 financial year closed up strongly at 14.09%. The best performing sector for June was Health Care and the worst performer Energy. Banks continued to be under scrutiny, with South Australia announcing it would introduce its own state-based bank levy on the five major banks (including Macquarie), just six weeks after the Federal government announced a bank levy that aims to raise $6.2 billion. Benchmark S&P/ASX 200 Accumulation Index Investment objective To outperform the S&P/ASX 200 Accumulation Index by 4% p.a. (before fees) over a rolling three year period Investable universe ASX listed securities with a focus on the S&P/ASX 200 Number of stocks 15–30 Asset allocation Australian equities 80–100% Cash 0–20% Stock limit 15% maximum weighting Investment timeframe 5 years Portfolio managers Jamie Nicol (Chief Investment Officer) The DNR Capital Australian Equities High Conviction Portfolio outperformed its benchmark by 0.17%. Scott Bender (Portfolio Manager) Gross active return 1mth 3mth 6mth 1yr 3yr 5yr 7yr 10yr Incep.* 0.34 0.17 0.17 0.61 -1.58 2.19 4.81 3.16 1.65 19.42 14.09 5.33 11.71 6.63 5.08 16.80 11.81 4.99 13.41 8.94 4.47 7.88 3.61 4.27 13.06 9.22 3.84 % High Conviction Portfolio S&P/ASX 200 Accumulation Index Excess Return * Inception date—October 2002 % % % % % % % % Portfolio Excess Return Annualised excess return 6% 5% 4% 3% 2% 1% 0% 1yr 5.33% 2yr 5.14% 3yr 5.08% 4yr 5.10% 5yr 4.99% 6yr 3.97% 7yr 4.47% 8yr 4.14% 9yr 5.15% 10yr 4.27% Inception* 3.84% Portfolio Excess Return Excess return (calendar year) 12% 10% 8% 6% 4% 2% 0% 2016 2.36% 2015 9.97% 2014 0.44% 2013 10.02% 2012 0.90% 2011 3.60% 2010 2.12% 2009 5.37% 2008 4.58% 2007 1.01% 2006 3.02% 2005 2.59% 2004 8.08% 2003 1.74% Source: DNR Capital Performance data relates to the DNR Capital model portfolio. Performance of an investment in this model portfolio through a Portfolio Service may have different performance to the performance in this monthly update as a result of different policies and procedures at different Portfolio Service operators. Past performance is not an indication of future performance. No allowance has been made for taxation and fees are not taken into account. Performance Report June 2017 Sector weightings % Portfolio attribution The top stock contributors were: Real Estate (5.4) Consumer Discretionary (8.7) }} Consumer Staples (9.6) Energy (1.1) Financials (33.1) Health Care (4.3) }} Industrial (19.2) Information Technology (4.9) Materials (11.4) Telecommunication (0) Utilities (0) Cash (2.3) Source: DNR Capital }} 12 month - top contributors and detractors Top 5 contributors Alpha* Healthscope (ASX:HSO)—Shares rebounded as margin concerns appeared overplayed. Medical specialist attendance growth (~3.5%) remains essentially in line with its 10-year average. ALS (ASX:ALQ)—Major gold miners have recapitalised and are now approaching a net cash position. In 2016, junior gold miners raised the most equity in five years. Exploration budgets have troughed, and it is estimated that the capital raised by the juniors alone could underpin a 50% increase in exploration activity over the next two to three years. ALS also benefited from broker earnings upgrades. Wesfarmers (ASX:WES, no holding)—Shares came under pressure during the month as the company announced the need for greater price investment in the Coles business, which will weigh on margins. Telstra Corporation No Holding 1.58% The top stock detractors were: Treasury Wine Estates Overweight 1.27% }} Lendlease Overweight 1.14% ALS Overweight 0.99% South32 Overweight 0.89% Healthscope Overweight -1.40% Brambles Overweight -1.12% ANZ Banking Group No Holding -0.61% SKYCITY Entertainment Group Overweight -0.51% Cash Overweight -0.44% Top 5 detractors }} Monthly - top contributors and detractors Top 5 contributors Alpha* Healthscope Overweight 0.35% ALS Overweight 0.33% Wesfarmers No Holding 0.20% Janus Henderson Group Overweight 0.14% IRESS Overweight 0.13% CSL No Holding -0.26% QBE Insurance Group Overweight -0.24% SKYCITY Entertainment Group Overweight -0.18% Brambles Overweight -0.16% ANZ Banking Group No Holding -0.13% Top 5 detractors * Alpha is the portfolio return less benchmark return. These tables represent the stocks contribution of alpha to overall portfolio alpha and is determined by the stocks active weight relative to the benchmark and share price return relative to the benchmark. }} CSL (ASX:CSL, no holding)—Haemophilia accounts for 16% of CSL’s sales and the company has high hopes for its latest products. At its research and development day in late 2016, the company said that it expected new haemophilia products IDELVION (Hem B) and AFSTYLA (Hem A) could generate ~US$700m– US$1b in revenue in four to five years, well above the FY20 US$550m estimate. QBE Insurance Group (ASX:QBE)—QBE downgraded its group combined operating ratio to 94.5–96.0%, from 93.5–95.0% previously, due to ‘higher-thanexpected claims activity’ in its emerging markets’ business. QBE shares fell 10.3% on the day of the announcement which appeared to be an overreaction given the size of the downgrade but reflected disappointment given the company had previously appeared to be over its recent woes. SKYCITY Entertainment Group (ASX:SKC)—The Chairman of SKYCITY Entertainment Group, Chris Moller, has announced his retirement from the Board, effective 31 December 2017 and a major shareholder sold a stake. Market review This month we review the 2017 financial year and the outlook for the following year. The past year has seen a strong return by the market of 14.09%, and our portfolios have enjoyed good outperformance. The major drivers of the market were a rebound from a Brexit selloff late last year before improving economic data, and Trump policies that drove expectations in a pick up of inflation. This resulted in a strong rotation in market leadership from growth stocks to value stocks. The market then consolidated across the first half of 2017, before softening as the domestic economy showed some signs of weakness for the consumer, and the Federal bank levy impacted the bank sector. Here we discuss the stocks that were the major winners and losers for the portfolio in the 2017 financial year. Performance Report June 2017 Major Winners ALS (ASX:ALQ, +55%)—A pick up in commodity prices drove an increase in spending on exploration, resulting in a pick up in ALS’s commodity-testing business. Furthermore, it announced the intention to sell its lossmaking oil business and make further acquisitions in the life sciences (food and environment). This resulted in an improvement in the outlook for a business with a very strong market position that continues to take share globally. We are particularly interested in its food testing business. This is a market that is fragmented globally yet has very strong growth rates, as consumer and government interest in maintaining safety standards and understanding the health content of food increases. South32 (ASX:S32, +78%)—As commodity prices increased, this former BHP Billiton (ASX:BHP) selloff enjoyed a strong run. Profits in the 1H17 were up from US$141m to US$479m and the company had US$859m in cash, affording it flexibility to announce a US$500m buy-back and further exploration opportunities. Its focus on cost out and capex discipline means it continues to produce significant levels of cash to support further capital management initiatives. Lendlease (ASX:LLC, +37%)—Lendlease enjoyed another solid year with profit up 12% to 1H17. The shares have been volatile in recent years despite steady profit growth. It has oscillated between concerns regarding settlement risk on apartments, to interest in the potential expansion in infrastructure spending in Australia, and the winning of development opportunities offshore. As apartments settle, Lendlease is deploying excess capital into cheaper markets offshore. Furthermore, it is seeking to sell a proportion of its retirement village business, which will further free up domestic capital for investment elsewhere. Treasury Wine Estates (ASX:TWE, +45%)—Profit in the 1H17 was more than double the prior year. TWE benefited from Chinese middle-class demand for wine and its US Diageo Wine acquisition. The company also announced the launch of a French wine portfolio that will be sold into China, and increased long-term profit margin expectations as it continued to evolve towards a premium-branded consumer business. Major Losers Healthscope (ASX:HSO, -20%)—HSO had a poor 1Q17 as a range of factors impacted hospital admissions. These included affordability concerns that caused delays to surgeries, and pressure from over-servicing concerns, creating some constraints on activity by doctors. Following this, admissions stabilised in 2Q17 and HSO adjusted its cost base and delivered a better-thanexpected February result (relative to post-September expectations) with group EBITDA up 5%. However, the stock struggled as the market remained concerned regarding these factors impacting admissions. The past half we have seen some volume improvement, bouncing off lows of 2–3% growth to 3–4%. These figures were still below long-term trends of circa 5%. Longer term, the demographics of an ageing population provide support for volumes and the opening of North Shore Hospital will be a key driver for Healthscope. Brambles (ASX:BXB, -19%)—A change in leadership and increased competition resulted in a poor 1H17 result and a downgrade in long-term growth expectations. Underlying profit was up a disappointing 2% in the 1H17 on sales growth of 5% (which indicated a low single digit 2Q17). Management lowered long-term sales growth expectations from high-single digits to mid-single digits. After absorbing the downgrade in expectations, sales growth stabilised during the 3Q17. Furthermore, some of the competitive pressures have eased (lumber prices have increased). Going forward, management will focus on improved capital efficiency and execution and move towards outlining its growth plan. Outlook for 2017/2018 In assessing the outlook for the market, we are thinking about a range of issues that include the global growth outlook, the potential for inflation to raise its head, the pressures on the consumer in Australia and the political environment. Global growth Recent data continues to support the global growth outlook. US manufacturing data has been particularly strong with the Purchasing Managers Index (PMI) accelerating to 57.8 in June, which is at a three-year high and signals strong expansion. Likewise, we have seen continued economic improvement in Europe with the PMI at 57.4, the strongest since April 2011. Inflation Clearly markets have anticipated this economic improvement to some extent, given the run in share prices. The question we are asking is ‘When will inflation begin to pick up in response to a tightening of capacity?’. There is some debate in the US as to the level of unemployment that will drive such a tightening. Wage growth has remained stubbornly soft. An argument exists that new technology, like robotics, and competition from outsourcing has reduced the level that unemployment needs to be at before it impacts wage inflation. Nonetheless, while business confidence remains strong, we are inextricably moving towards such a tightening and a drive towards a pick up in bond yields. This can then influence market valuations and portfolio positioning. Goldman Sachs has recently noted that low interest rates have driven the attractiveness of ‘low volatility’ stocks to such an extent that the beta on these low volatility stocks is now similar to high volatility stocks. This suggests that we are better off looking at stocks with volatility for opportunities. Performance Report June 2017 The PE of the market is sitting in line with long-term averages at 15.7x, but remains cheap when compared to bond yields. Bond yields are, however, exceptionally low. The market has been concerned with deflation rather than inflation and should that change, bond yields could move faster than the market is anticipating. The question is ‘How will equities respond to a sharp move in bond yields?’. In theory, bond yields are currently 2.66% and we estimate that they could move to 4.6%. Equities would still represent fair value by comparison. However, in practice, we would expect the performance of equities to depend on the drivers of a bond move. If it is due to a pick up on growth, rather than an inflation shock, then equities would perform reasonably well. However, an inflation shock would create difficulties for certain parts of the market like bond proxies and other low volatility stocks. Domestic consumer pressures The domestic economy remains mixed. The consumer, and consumer-exposed companies, had a difficult two months in March and April, most likely because of the poor weather, multiple public holidays and higher electricity and mortgage costs. Consumer confidence remains soft and household debt is high. In addition, we expect housing prices to at least moderate, which creates some risks for the domestic economy. However, at odds to this is the fact that business confidence is strong, we are seeing a pick up in mining activity, travel remains strong (reflected in a recent Flight Centre Travel Group upgrade), export sectors like agriculture and tourism are performing well, and infrastructure projects are accelerating. There are mixed signals for the domestic economy, and an opportunity for judicious portfolio positioning to add value. The political environment The political environment remains a long-term concern. The last 10 years have seen slow economic growth resulting in underemployment for the young but educated, while low interest rates have driven up housing prices, locking them out of asset markets. This is creating a ripe economic environment for populists and we are seeing surprising political outcomes as a result—Brexit, Trump, Corbyn, Sanders. Many of the economic policy solutions of populists are inflationary (infrastructure spending, tax cuts) and others are anti-globalisation (antitrade). This creates risks for long-term growth rates. Conclusion The economic outlook appears reasonably robust. Valuations are fair, and as a consequence the outlook for the market appears reasonable. A range of uncertainties overhangs the markets, particularly the political environment. The overwhelming issue though is the effect that the improving economic environment will have on inflation in the next year. Low interest rates have been a critical driver of markets, and a major shift in this regard could cause some destabilisation and a rotation in leading companies in the market. Portfolio moves No major changes to the portfolio during June. Performance Report June 2017 Investment philosophy DNR Capital believes a focus on quality businesses will enhance returns when it is combined with a thorough valuation overlay. We seek to identify quality businesses that are mispriced by overlaying a quality filter, referred to as the ‘quality web’, with a strong valuation discipline. The portfolio is high conviction and invests for the medium term. Investment strategy The Australian Equities High Conviction Portfolio has an investment style best described as ‘style neutral’. The security selection process has a strong bottom-up discipline and focuses on buying quality businesses at reasonable prices. We define quality businesses as being those with the following five attributes: }} earnings strength (particularly improving return) }} superior industry position }} a sound balance sheet }} strong management }} low environmental, social and governance (ESG) risk. Where we are satisfied that a security possesses quality characteristics, then it is eligible for inclusion in the portfolio. However, it must also represent value and sit comfortably within our portfolio construction requirements. A range of valuation methodologies are used depending on the nature of the business being assessed to identify mispriced opportunities. The portfolio construction process is influenced by a top-down economic appraisal and also considers the risk characteristics of the portfolio, such as security and sector correlations. Disclaimer This document has been prepared by DNR Capital Pty Ltd, AFS Representative - 294844 of DNR AFSL Pty Ltd ABN 39 118 946 400, AFSL 301658. It is general information only and is not intended to be a recommendation to invest in any product or financial service mentioned above. Whilst DNR Capital has used its best endeavours to ensure the information within this document is accurate it cannot be relied upon in any way and you must make your own enquiries concerning the accuracy of the information within. The information in this document has been prepared for general purposes and does not take into account the investment objectives, financial situation or needs of any particular person nor does the information constitute investment advice. Before making any financial investment decisions you should obtain legal and taxation advice appropriate to your particular needs. Investment in a DNR Capital managed account can only be made on completion of all the required documentation. DNR Capital does not guarantee the repayment of capital from the portfolio or the investment performance of the portfolio. If you have invested in the Australian Equities High Conviction Portfolio via a service such as investor directed portfolio service, managed account service or separately managed account (‘Portfolio Service’), you can obtain information from the Portfolio Service operator. If you invest via a Portfolio Service, different terms may apply to your investment. You should read the disclosure document for that Portfolio Service and consider your circumstances prior to investing. Office address Level 22 307 Queen Street Brisbane QLD 4000 Postal address GPO Box 3263 Brisbane QLD 4001 Telephone 07 3229 5531 Email [email protected] Website www.dnrcapital.com.au DNRHCIR .4.04.1706