Portfolio updates June 2021

Below is a short video where we run through this months market and portfolio commentary.

Market and portfolio commentary

Multi-asset market update

Investment markets remained strong in June, with Australian equities, international equities, property all posting positive returns as the good economic news continued to lift sentiment. Bonds were also up as there were no new shocks to interest rate expectations, and the steeper yield curves around the world mean that bond holders are enjoying higher returns than they have received in the last few years. Like May, only infrastructure produced a negative return over the period. This month quality and growth equities took the lead and value underperformed.

With this backdrop our defensive positioning held the portfolio back, but with equity and property valuations surging above long term averages and the increased risk of inflation eating into corporate profit margins we feel the balance of risk to return is tilted toward the negative and continue to focus on protection.

Multi-asset portfolio update

The expectations for growth are strong, given the roll out of vaccines and unprecedented economic stimulus. But risks remain: there is the risk of higher inflation and expectations of higher interest rates, and COVID is far from contained in all countries. The high valuations in risky assets globally leave little margin of safety for investors if growth disappoints, so we remain defensively positioned. 

The strong returns in investment markets mean that even with the defensive tilt our portfolios are comfortably above their strategic return targets.

Equities market update

In June quality equities outperformed other styles globally. In the Australian market we saw strong returns in telecommunications and IT. Consumer discretionary stocks also did well, driven by positive sentiment associated with the reopening of the economy, although the impacts of the new lockdowns that began at the end of June have not been fully processed by the market by the end of the month. Materials and financials were the worst performing sectors over June.

Our portfolio performed well in this environment, in particular due a strong resurgence in TPG, Iress and Altium as market participants recognised the value in these companies through revaluations. For Iress and Altium, the price changes were sparked by potential takeover and we anticipate more such offers while the market valuations for quality companies remain depressed.

Equities portfolio update

We see the surge in iron ore prices and bank lending as unsustainable and have positioned the portfolio in more defensive assets and cyclicals that stand to benefit from the return to normal post-COVID but have reasonable valuations.

At the start of June we removed Altium from the portfolio following a takeover offer that we felt realised most of the share price potential for the company. We reinvested the proceeds in several smaller positions in cyclical companies that stand to benefit from the normalisation of activity after COVID. We also sold our residual holding of Spark New Zealand and allocated the capital to TPG, which is exposed to similar themes of the growth in demand for internet and mobile connectivity but was at a substantial discount to other companies in the sector.  Resmed surged at the start of June, driven by a product recall from a competitor. As the stock’s valuation factored in significant long term earnings growth, we exited the position and reinvested in Aurizon, whose compelling valuation more than compensates for the expected decline in coal production over the long term.

Concentrated portfolio update

The portfolio is focussed on companies that are trading at depressed valuations following COVID and which should do well when the equity market recognises that earnings have normalised.

The portfolio’s largest positions are in industrials, holding a series of discounted companies that will do well if their earnings return to pre-COVID levels. Within the materials sector we have positions in select companies outside of iron ore and coal, whose prices we feel are unsustainable. The portfolio’s largest positions are in TPG and Ramsay Health Care, both of which are quality companies that are trading at deep discounts to historical valuations.

The portfolio has no holdings in the Australian banks, which are trading on elevated multiples of high earnings stoked by an unsustainable growth in mortgage lending.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Receive our investment insights

Something went wrong. Please check your entries and try again.