Powerwrap’s Model Portfolios

 

Every month we provide our readers with an update on a few of new and existing Separately Managed Accounts on the Powerwrap platform. Please keep in mind the information disclosed is general in nature and does not take into account your personal situation.

 

Top 10 Model Portfolios by Funds Under Administration

 

 

 

Blackmore Capital Equity Investors Monthly Portfolio Update

Commentary

Investor sentiment remains exuberant, with central banks having created a very supportive backdrop for global equities. With the prospect of interest rates remaining in the deep freeze for the foreseeable future, investors have become increasingly dependent on dividends as a valuable source of income.

Nevertheless, we are mindful that the rise in company valuations leaves equities reliant on a rebound in earnings growth and economic activity in the coming months. With the ASX 200 up around 20 per cent over the rolling year, prudence suggests that the ‘easy money’ may have been made already.

In recent months there has been a noticeable rotation toward value and cyclical stocks in expectation that the global economy may be on firmer footing. Ultimately, the question of whether current equity market valuations are sustainable depends on further evidence of a recovery in the global business cycle.

Increasing Northern Star Resources (NST) and BHP Group (BHP)

Recent changes to the Blended Australian Equities Portfolio & Australian Equities Income Portfolio

 

Reduced Commonwealth Aust Bank (CBA)

CBA has been our “best of a bad bunch” bank since early 2019 when the position was established as the sole major bank exposure in the portfolio for some time. Its relative virtues are its franchises in retail deposits and mortgages, which maintain its sector leading return on equity (12.5% vs sector c10.0%) and consequently sector higher price to earnings ratio (16.5x vs c12.0x).

At this stage these relative strengths have been more fully reflected in CBA’s valuation compared to the other banks. Its year to date return of 16.6% (vs NAB 9.7%, ANZ 5.2% and Westpac 2.6%) has resulted in its price to book ratio trading at a 41% premium to the sector versus a longer term average of 27%.

 

Increased National Australia Bank (NAB)

Following this performance, we have reduced the holding in CBA and reinvested part of the funds raised into the existing holding in NAB, which we believe is well positioned in SME and retail banking. NAB has recently been under the stewardship of a competent executive chairman and has a just-commenced CEO with experience in reforming Royal Bank of Scotland in the UK, another banking market plagued by mis-selling remediation.

 

Increased BHP Group (BHP)

Since we reduced the holding in BHP back in March the stock has underperformed the market, returning +6.6% versus the ASX200 +11.8%. Meanwhile consensus expectations for BHP’s FY20 earnings have increased by 10.2% (in AUD) compared to a decline of 3.1% in the ASX200’s forecast earnings growth.

Iron ore prices have declined from the mid-2019 peak levels of ~US$126/tonne associated with supply outages in Brazil, trading recently at a more sustainable ~US$85/tonne. Notwithstanding the associated decline in earnings expectations from their August peak, we find the combination of BHP’s relatively attractive valuation compared to the industrials, the nascent recovery in forward looking economic indicators in Western economies and the improvement in Chinese steel producer margins sufficient to add to the holding of BHP.

 

Increased Northern Star Resources (NST)

We added to the existing position in NST following a two month period where the gold sector declined by c.14% against a gold price which traded flat in both AUD and USD. The derating of gold companies relative to the gold price is best explained by rising yields in global bond markets associated with growing optimism, built on expectations of a “Phase-one” US-China trade deal and a bottoming in forward looking economic indicators in major Western economies. This has made the portfolio “insurance” offered by gold companies, as an uncorrelated asset, relatively less expensive while NST is also un-geared, so ongoing pressure on sub-investment grade (junk) bond markets could eventually make strong balance sheets relatively more attractive.

We favour gold miners with diversified operations, low sovereign risk, strong free cashflow generation, low gearing and organic growth prospects. We try to minimise sovereign, financial and operational risk for an exposure which should offer uncorrelated risk diversification for the portfolios. NST’s balance sheet is net cash and it has operations in Australia (WA) and the US (Alaska), with considerable exploration potential and production growth through relatively modest capital expenditure. Its dividend yield is just 1.8% but the payout ratio is only c.25%, so there is capacity to grow dividends at a faster rate than earnings in the future.

 

Blended Australian Equity Portfolio  |  Australian Equities Income Portfolio

The Blended Australian Equity Portfolio finished the month of November up 4.74% compared to the ASX 200 Accumulation Index up 3.28%. Positive contribution for the Blended Australian Equity Portfolio was driven by Caltex (CTX), Cleanaway Waste Management (CWY), and Brambles (BXB). Whereas, News Corporation (NWS), CSL Limited (CSL), and Cooper Energy (COE) weighed on attribution.

The Australian Income Portfolio finished the month of November up 4.15% compared to the ASX 200 Accumulation Index up 3.28%. Positive contribution for the Australian Income Portfolio was driven by Caltex (CTX), Cleanaway Waste Management (CWY), and Macquarie Group (MQG). Whereas, Viva Energy REIT (VVR), Transurban (TCL), and ASX Limited (ASX) weighed on attribution.

To download the fact sheet for the Blended Australian Equities Portfolio click here.

To download the fact sheet for the Australian Equities Income Portfolio click here.

 

Pendal Sustainable Australian Share Fund

Commentary

Description of Fund

This Fund is designed for investors who want the potential for long-term capital growth and tax effective income, diversification across a broad range of Australian companies and industries. The Fund uses an active stock selection process that combines sustainable and ethical criteria with Pendal’s financial analysis. The Fund actively seeks exposure to companies that demonstrate leading environmental, social and corporate governance (ESG) and ethical practices and avoiding exposure to companies with activities we consider to negatively impact the environment or society.

 

Pendal’s investment process for Australian shares is based on our core investment style and aims to add value through active stock selection and fundamental company research. Pendal’s core investment style is to select stocks based on our assessment of their long term worth and ability to

outperform the market, without being restricted by a growth or value bias. Our fundamental company research focuses on valuation, risk factors (financial and non-financial), franchise and management quality. The Fund will not invest in companies with material business involvement in the following activities:

 

  • the production of tobacco or alcohol,
  • manufacture or provision of gaming facilities,
  • manufacture of weapons or armaments,
  • manufacture or distribution of pornography,
  • directly mine uranium for the purpose of weapons manufacturing,
  • extraction of thermal coal and oil sands production.

 

We consider that a company has a material business involvement in an activity if 10% or more of its total revenue is derived from that activity. Pendal actively engages with the management of the companies we invest in to manage risk, effect change and realise potential value over the long term.