Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 January 2018. Performance is net of investment management fees, does not deduct portfolio administration fees and assumes reinvestment of all distributions. Inception was 30 September 2002. Performance is based on Fitzpatricks model accounts and will differ between the four risk profiles – individual client portfolio performance may be different from the results above. Market indices represent performance of; The RBA Cash rate, 50% split between The RBA Cash rate and S&P ASX 200 Accumulation Index, S&P ASX 200 Accumulation Index, S&P ASX Small Ordinaries Accumulation Index, S&P ASX 300 Listed Property Accumulation Index, MSCI World ex-Australia net $A and Local Currency, Bloomberg AusBond Composite Bond Index and the US Spot Gold price. Past performance is not a reliable indicator of future performance.
MARKET COMMENTARYRisk appetite remained firm heading into the new year and January saw a further rise in US equities (5.7%). The Australian market in contrast was weaker, the S&P/ASX 200 lower by -0.4%. The Australian dollar rose against the US dollar, climbing 3.1% to US0.81 cents at the end of January, as the US dollar weakened over the month. However, it was the bond markets that drew the most attention during the month as yields rose significantly across the curve. The sharp sell-off in bond markets was driven by a view that synchronised global growth would experience some upward pressure from inflation, and markets remained sensitive to such signs. An overshoot in inflation over the coming year may see a revision to the Federal Reserve’s stance to tighten rates at a steady pace and result in more aggressive actions. We highlighted last month the attention given to the flattening of the yield curve over much of 2017. When the Fed is pushed to tighten aggressively this has the impact of lessening near term inflation, but also potentially
suppressing longer term inflation, growth and potentially the desire to take risk. Yields on 10-year US treasuries rose by 30 basis points (bps) over the month, to close at 2.71%, their highest in almost 4 years. 2-year US treasuries rose reflecting a growing acceptance by investors that the Fed needs to move in line with its guidance or risk being left behind the curve. Looking at the recent yield changes, the vast majority of the rise in US 10-year yields has been driven by inflation expectations rather than real yields, reflecting increasing inflationary expectations. Australia’s bond market saw a mixed performance across the curve. Long end (10-year) yields rose 18bps in sympathy with the global sell-off, but the short end remained very firm, as the RBA is expected to keep rates on hold over the coming year. Another disappointing CPI release on the last day of January saw yields fall as the market sees less risk of a series of policy moves in Australia.
Credit markets were firm again in January, although the momentum (i.e. spread tightening) came to a halt very early in the month. The European Central Bank commenced a reduction of its ongoing quantitative easing debt purchases during the month, although the reduction was disproportionately skewed towards sovereign debt purchases, leaving the credit purchases unchanged. Australian Investment Grade credit was slightly tighter (by 2.7bps) during the month and the US High Yield market was very strong again, returning 1.65% in excess of equivalent maturity government debt. In a period of rising yields, we have highlighted that this is often a period when High Yield performs well, given the negative correlation between interest rates and credit spreads, as was the case in January.Within the context of market concerns about inflationary risks and an associated unwind of central bank liquidity, US equities held up very well. US Equities had their strongest
MARKET COMMENTARY (CONT.)month since March 2016, and Information Technology was again a very strong contributor with a return of 7.6% for the month (24% weight in the index). In other markets, European equities rose 1.6%, with a standout performance from Italy (7.9%) following the late December dissolution of Parliament. Emerging equities were also broadly stronger, rising 6.8% in local currency terms lead by Brazil (up 11.1%). Australia lagged other markets in January, with underperformance quite stark when assessed over a 12 month basis. The Australian dollar was higher against the US dollar over January, mainly impacted by US dollar weakness. This is somewhat puzzling given the sharp reduction in the yield spread of 10-year Australian bonds over 10 year US treasuries which is approaching zero for the first time in over 20 years. This spread support will likely be one factor pushing the Australian dollar lower over coming months.
PORTFOLIO COMMENTARYOur Risk Targeted Portfolios delivered very pleasing returns in January ranging from 0.8% to 1.2% despite a lacklustre month for the Australian equity market. Asset allocation for the month remained broadly unchanged from December while the Portfolios remain well diversified and focused on protecting clients on the downside.Our Australian equities Portfolios’ outperformed the benchmark (S&P ASX 200 Accumulation Index), as exposures remained well diversified across industries and sectors. Given our significant variance from the index benchmark (S&P/ASX 200, being a concentrated fund), individual stock selection as a result of our investment process continues to be a key driver of our returns.Contribution to performance was broad-based, with encouraging returns from international jewellery company Lovisa Holdings (14.1%), medical devices company Resmed (13.5%), diversified retailer Super Retail Group (6.1%) and blood fractionation company CSL Limited (3.6%). Investments in Financials also contributed strongly, with Macquarie and Magellan Financial returning 3.5% and 2.2% respectively. Companies that detracted from performance during the month included our investments in education provider Navitas, who reported a soft profit result and infrastructure names including Macquarie Atlas Roads and Transurban, underperforming due to expectations of rising US interest rates.Within our Australian equity managers, the Bennelong ex-20 Australian Equities Fund delivered a positive return of 1.7%, as a result of continued strong stock selection and the avoidance of the big banks which fell 1.3% over the month. The SGH ICE Investor Fund rose 0.3% for the month, with key contributors to performance from technology services companies Praemium and Bravura, medical device company Resmed and dairy products company A2 Milk. Next month is a key month for Australian equities as company profit reporting season moves into full swing in February, which will be an important driver of future share price returns for the Portfolio.
PORTFOLIO COMMENTARY (CONT.)International equity markets in contrast to Australia began the year strongly, the MSCI World ex Australia (USD terms) returned 5.3%, while only 1.8% in AUD terms due to the strong performance of the Australian dollar (3.5%) over January. The strength of the Australian dollar negatively impacted the returns of our global equity managers. The Antipodes Global Fund - Long Only returned 3.1%, outperforming its index, with key positive contributions from exposures to Bank and Software companies (the two largest sector allocations). The Magellan Global Equities Mandate returned 1.9% in January. The Fund continues to maintain significant allocations to IT and Internet/eCommerce stocks, which had mixed performances in January.The Northcape Global Emerging Market Fund returned 1.0% in January, underperforming the MSCI Emerging Market Index. The Fund maintains large positions in Consumer Staple and Information Technology stocks in Asia with low to no net debt which tend to lag the broader market but outperform on the downside.The Alternatives portion of the Portfolio was stronger in January, with strong performances coming through our trend following managers. Crown Diversified Trend (8.2%), OneRiver (5.5%) and Man Alternative Risk Premia (3.3%) all enjoyed strong investable trends in Global Equity markets, Currencies and Energy prices. Alphadyne, our Asian based Macro manager found success on the right side of interest rates moves both in Asia and the US as the markets priced in the expectation of future hikes over the upcoming Federal Reserve meetings. Our best performing
Source: Fitzpatricks, Iress. Asset allocation as at 31 January 2018.
Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 January 2018. Performance is net of investment management fees, does not deduct portfolio administration fees and assumes reinvestment of all distributions. Past performance is not a reliable indicator of future performance.
Equity Market Neutral Manager was the Bennelong Long Short Equity Mandate, assisted by a strong quarterly profit update from Resmed which contributed to long Resmed / short Ansell pair being amongst their strongest pairs.Rates and Credits continued to track pleasingly in January, retuning 0.4% despite the sharp sell-off in bond markets. Exposures to the Kapstream Absolute Return Income Fund returned 0.4% as interest income from the Fund’s bond holdings remained the largest positive contributor. The Fund’s long position
in a basket of Asian currencies versus the US Dollar was also positive for returns as the US dollar continued to weaken. Allocations to the JP Morgan Global Strategic Bond Fund also delivered pleasing returns (0.6%), as the Fund remains significantly exposed to US dollar Investment Grade and High Yield credit which assisted the returns in January. Given the comments above around inflation during January, inflation protected securities outperformed the nominal bond market over recent months, adding value to the Portfolio.
Barwon Childcare Property Fund 1.4% 5.4% 9.7% 20.1% -
Private Debt
Dickson Trust 1.1% 3.3% 7.3% - -
Bankstown Trust II 1.4% 4.5% 9.5% - -
Caringbah Trust 1.8% 5.5% 11.3% - -
Greenwood Trust 1.6% 5.8% 12.8% - -
Throsby Trust 1.7% 5.5% 11.7% - -
Homebush Trust 1.8% 5.4% 7.2% - -
Essential Secured Notes 0.8% 2.4% 5.1% - -
Smarter Money Active Cash 0.2% 0.7% 1.3% 2.8% 3.0%
Liquidity 0.1% 0.4% 0.7% 1.5% 1.7%
Source: Atrium and External Investment Manager / Administrator websites or reports. Performance to 31 January 2018. Performance is net of investment management fees, does not deduct portfolio administration fees and assumes reinvestment of all distributions. Holdings within the Atrium Alternatives Fund are given on a look through basis, individual clients will not hold these funds directly. Past performance is not a reliable indicator of future performance. The Magellan Global Equities Mandate is a separately managed portfolio managed by Magellan Asset Management Limited in a manner consistent with the Magellan Global Fund. The Bennelong Long Short Equity Mandate is a separately managed portfolio managed by Bennelong Long Short Equity Management Pty Ltd in a manner consistent with the Bennelong Long Short Equity Fund.
Important Information
The information in this document (Information) is provided by Fitzpatricks Private Wealth Pty Ltd (ABN 33 093 667 595, AFSL 247 429) (Fitzpatricks), and where relevant, its related bodies corporate. Unless otherwise stated, the Information is of a general nature only and does not take into account the objectives, financial situation or needs of any person. Before acting on the Information, investors should consider its appropriateness having regard to their own objectives, financial situation and needs and obtain professional advice. No liability is accepted for any loss or damage as a result of any reliance on the Information. Past performance is not a reliable indicator of future performance. Future performance and return of capital is not guaranteed.
Performance figures relate to the model portfolios offered by Fitzpatricks, with investment management implemented by underlying investment managers selected by Fitzpatricks. The details of each model portfolio may change and you should keep this fluidity in mind when considering figures. Actual performance will differ among clients depending on the timing of their investment, the ability of an investor to nominate stocks they do or do not wish to hold and the level of variation from the models. Performance is net of investment management fees, does not deduct portfolio administration fees and assumes reinvestment of all distributions. They do not take into account inflation or tax or adviser fees.
For more information please contact your Adviser or Fitzpatricks Private Wealth:
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