Each month Powerwrap gives investors the chance to see the inner workings of Powerwrap’s model portfolios and SMA’s. See whats stocks the Model Manager bought and sold.
WCM (International) – Update
Blackmore Capital Equity Investors Monthly Portfolio Update
The audacious rise in global equity markets was abruptly punctuated in August. Investor mood darkened with the disconcerting rupture in US and China trade relations coupled with key economic indicators showing a further withering of global economic growth. Yet, by the end of August an element of recovery in risk sentiment shielded equity markets from the harshest effects of an intensifying trade war and an underwhelming 2019 earnings reporting season. A raft of stimulus measures and more monetary easing by central banks provided ballast to limit some of the duress felt during August. A weak August reporting season underlined the fragility of the Australian and global economies. Overall, analysts downgraded their outlook for June 2020 earnings by around 2%. Earnings downgrades were most heavily felt in cyclical and industrial companies. By contrast, defensive sectors outperformed the broader market, with consumer staple and healthcare stocks delivering resilient earnings results.
At a time when cash returns are close to zero, an important source of support for the Australian equity market will be its ability to deliver positive earnings and dividend growth for the 2020 financial year. The ASX 200 remains on track to expand earnings per share by low-to-mid single digit growth. Nonetheless we are cognisant that the current state of the global economy warrants a sense of investor caution. Elevated cash levels are held in readiness for future turbulence.
Blended Australian Equity Portfolio | Australian Equities Income Portfolio
The Blended Australian Equities Portfolio finished the month of August down -2.18% compared to ASX 200 Accumulation Index down -2.36%. Positive attribution for the Blended Australian Equities Portfolio was driven by Healius (HLS), News Corporation (NWS), and Resmed (RMD). Whereas, Cleanaway Waste Management (CWY), Brambles (BXB), and Caltex (CTX) weighed negatively on the portfolio’s attribution. The Australian Income Portfolio finished the month of August down -3.08% compared to the ASX Accumulation Index down -2.36%. Positive attribution for the Australian Income Equities Portfolio was driven by Healius (HLS), Woolworths (WOW), and Viva Energy REIT (VVR). Whereas, Brambles (BXB), Cleanaway Waste Management (CWY), and Caltex weighed negatively on the portfolio’s attribution.
Blended Australian Equities Portfolio
The Blended Australian Equities Portfolio commenced investing in Feb 2014. Since its inception, the portfolio has achieved a compound annual return of 11.7% compared to the ASX 200 Accumulation Index of 8.4%. Click here for full report.
Australian Equities Income Portfolio
The Australian Equities Income Portfolio commenced investing in May 2014. Since its inception, the portfolio has achieved a compound annual return of 10.3% compared to the ASX 200 Accumulation Index of 8.3%. Click here for full report.
BanyanTree Investment Group
August was a tough reporting season for ASX-listed companies, with both small cap and large cap stocks underperforming expectations (on average). According to data from Bloomberg, 65.5% of the companies reported revenue which came in below market expectations and 52.8% of the companies missed analysts’ earnings estimates. The results were materially below previous reporting seasons. Outlook commentary was subdued and cautious, especially from companies with global revenues. On a positive, we saw capital management (e.g. buybacks and higher dividends) from companies with balance sheet flexibility and earnings visibility.
* Key takeaway #1 – FY19 results were weak. On an aggregate basis, revenue surprised on the downside by -1.8% and earnings missed expectations by -1.2%.
* Key takeaway #2 – Outlook disappointed and earnings revisions followed. Market expectations were revised lower post the August update, with revenues revised down by -0.2% and EPS revised lower by -2.9%. We had noted heading into this reporting season that we were particularly interested in the outlook commentary from management teams, rather than the FY19 numbers. The cautious outlook commentary is not entirely surprising given the macro and geo-political uncertainties in the market.
* Key takeaway #3 – Consumer discretionary surprised on the upside. One of the key surprises in the August reporting season was the consumer discretionary sector. On average, the performance was solid versus expectations, prior reporting period and, on average, the sector saw positive revisions. For the stocks we follow, revenue came in +1.8% above market expectations, were up +8.5% on prior year and saw market revisions of +1.4%. Similarly, EPS came in +6.3% above market expectations, +9.1% above pcp and saw positive revisions of +1.5%. We are cautious in reading too much into the numbers as a proxy for significant and sustained improvement in consumer spending at this stage.
* Key takeaway #4 – Industrials disappointed. The broader Industrials universe had a tough reporting period, with revenues coming in -3.4% below expectations and EPS -8.5% below. For the key industrials we follow, difficult macro led to lower volumes and higher input costs drove material margin pressure.
* Key takeaway #5 – Capital management was a positive. Buybacks and higher dividends were again a feature for companies which have balance sheet flexibility and stable earnings outlook. Some of the companies which announced a buyback included Amcor (AMC), AGL Energy (AGL), Aurizon Holdings (AZJ) and Link Administration (LNL). Notable companies under our coverage which saw dividends growth included Origin Energy (ORG), Qube Logistics (QUB), Rio Tinto (RIO) and JB Hi-Fi (JBH). * Key takeaway #6 – Cost out a focus, but then again it always is. Removing costs, especially in industries under earnings pressure, was again a feature with several companies announcing new cost out programs or increasing the value of existing efficiency programs.
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