Portfolio update April 2022

As markets continue to be challenging, our defensive positioning and focus on value has again added value for investors. Watch the video below for a summary, or see below for more details.

Clients can access the performance reports here.

Multi-asset market update

Market volatility continued in April. International equities fell heavily, mainly driven by reduced valuations for technology stocks and high quality growth businesses. In Australia the situation was reversed, with growth stocks experiencing a rebound and value exposures lagging. This largely reflects Australia’s smaller technology sector: the IT sector was down -10% but other growth names rose. Bonds also fell as rate hikes came back into focus, but also credit was strongly affected as fears of a recession caused by interest rate hikes made investors factor in the potential for defaults on corporate debt.

Our portfolio again weathered the turmoil well. Our defensive positioning, combined with the tilt to value in equities, protected our portfolio and meant the portfolio fell less than the benchmark indices overall and in each asset class.  

Multi-asset portfolio update

The prospect of central banks around the developed world raising rates rapidly to tame inflation has quickly pushed bond yields from historic lows to around fair value given the growth rates we are seeing in economies. At the same time, equity investors are dramatically cutting the amount that they are willing to pay for companies with strong growth forecasts. High growth companies whose growth falls below expectations have been doubly punished.

We have again taken advantage of the better pricing in bond markets to reinvest funds from alternatives into government bonds, and are now slightly overweight fixed income but still heavily tilted toward safter government bonds and away from credit. We remain defensively positioned overall, but will continue to increase our equity positions if the valuations of equities continue to improve.

Equities market update

The Australian equity market fell in April, although it was not down as heavily as international equity markets. IT stocks fell after last month’s rebound and materials companies were also down, led by the iron ore miners and rare earth plays. Richly valued consumer discretionary stocks also dropped, but the more defensive sectors posted modest positive returns.

Our portfolio bucked the trend, up strongly despite the falling market. Much of this was due to the bid by KKR for Ramsay Health Care, as once again acquisitive companies looked to buy a good quality Australian business trading at a lower than average valuation.

Equities portfolio update

Market sentiment appears to have recovered from the initial shock of Russia’s invasion of Ukraine, but commodity prices remain elevated. Central banks around the world have started to raise interest rates, which is causing compression in the valuations of many high growth companies and should reduce demand well below current levels. Coupled with the prospect of strong anti-COVID measures in China, we are not expecting commodity prices to remain at their current elevated levels for the long term.

We have taken profits in Ramsay Health Care, which is trading near the bid price, and reinvested in Tassal and Lend Lease, which are good businesses with strong growth that have recovered from historical missteps that depressed their valuations to attractive levels.

Concentrated Absolute Return portfolio update

Our portfolio bucked the trend, up strongly despite the falling market. Much of this was due to the bids by KKR for Ramsay Health Care and Perpetual for Pendal, as once again acquisitive companies looked to buy good quality Australian businesses trading at lower than average valuations.

The portfolio is focussed on companies that are trading at depressed valuations following disruptions due to COVID and inflation in commodity prices. These companies should do well as conditions return to normal.

The portfolio’s largest sector allocation is to industrials in 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, Brambles and Virgin Money UK, each of which offers good value given their earnings potential. The portfolio has a small allocation to Australian banks, as rising interest rates should be positive for near-term earnings. We have taken profits in our previous largest holding, Ramsay Health Care, following the bid for the stock from KKR.

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.

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