TOP 10 POSITIONS Westpac Banking Corporation Transurban Group CSL Limited Macquarie Atlas Roads Group Australia and New Zealand Banking Group Limited Commonwealth Bank of Australia Magellan Financial Group Limited Lovisa Holdings Limited Challenger Limited ResMed Inc. FITZPATRICKS MDA SPECIFIC PORTFOLIOS Monthly Report, July 2017 www.fitz.com.au 1 Monthly Report | Fitzpatricks MDA Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 July 2017. Performance is after investment management fees, excludes administration and advice fees and assumes re-investment of all distributions. Past performance is not a reliable indicator of future performance. AUSTRALIAN EQUITIES – DIRECT • Australian equity markets were flat relative to global markets over the month, and influenced materially by a significant rally in the Australian dollar (AUD). There was a material rotation towards riskier assets, as a result of the stronger AUD and buoyant commodity prices, as the Chinese economy continues to remain resilient. • The bulk of the sharp AUD rally occurred post RBA comments which raised expectations of future interest rate rises. This impact, coupled with some stock specific outcomes resulted in the underperformance of some of the larger Portfolio holdings, most notably in the Healthcare space. • A broad based sell off in companies negatively impacted by a rising Australian dollar saw detractions to performance from our holdings in CSL Limited, Resmed and James Hardie. Underweight positions to the Resources sector also detracted, most notably from not holding BHP, which performed very strongly. • Our overweight allocations to retail company Lovisa Holdings, renewable energy company Infigen Energy and education provider Navitas Limited contributed positively to returns, as did avoiding companies that performed poorly including Telstra and Brambles. • We expect the impact of the rising Australian dollar to be transitory in nature, and to be a net contributor to performance over time. However, we are more encouraged by the resilience of the Chinese economy and a raft of regulatory reforms that may serve to sustain commodity prices over the coming year. $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 MDA Direct Australian Equities Portfolio S&P ASX 200 Accumulation Index
Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 July 2017. Performance is after investment management fees, excludes administration and advice fees and assumes re-investment of all distributions. Past performance is not a reliable indicator of future performance.
AUSTRALIAN EQUITIES – DIRECT • Australian equity markets were flat relative to global markets over the month, and
influenced materially by a significant rally in the Australian dollar (AUD). There was a material rotation towards riskier assets, as a result of the stronger AUD and buoyant commodity prices, as the Chinese economy continues to remain resilient.
• The bulk of the sharp AUD rally occurred post RBA comments which raisedexpectations of future interest rate rises. This impact, coupled with some stockspecific outcomes resulted in the underperformance of some of the larger Portfolioholdings, most notably in the Healthcare space.
• A broad based sell off in companies negatively impacted by a rising Australiandollar saw detractions to performance from our holdings in CSL Limited, Resmedand James Hardie. Underweight positions to the Resources sector also detracted,most notably from not holding BHP, which performed very strongly.
• Our overweight allocations to retail company Lovisa Holdings, renewable energycompany Infigen Energy and education provider Navitas Limited contributedpositively to returns, as did avoiding companies that performed poorly includingTelstra and Brambles.
• We expect the impact of the rising Australian dollar to be transitory in nature,and to be a net contributor to performance over time. However, we are moreencouraged by the resilience of the Chinese economy and a raft of regulatoryreforms that may serve to sustain commodity prices over the coming year.
• The significant rally in the valueof the Australian dollar greatlyinfluenced the flat market returnof the Australian equities marketover the month. There was alot going on by means of amaterial sectoral rotation and‘risk on’ attitude, following thesharp AUD rally and evidence ofsustained economic growth outof China.
• The Portfolio produced anegative return for the month of -1.5%, as quality companies
Source: Fitzpatricks, Iress. Performance from 30 September 2010 to 31 July 2017. Performance is after investment management fees, excludes administration and advice fees and assumes re-investment of all distributions. Past performance is not a reliable indicator of future performance.
AUSTRALIAN EQUITIES – MANAGED FUNDS
$900
$1,000
$1,100
$1,200
$1,300
$1,400
$1,500
$1,600
$1,700
$1,800
Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16
Australian Equities (Managed Funds) Portfolio
S&P ASX 200 Accumulation Index
underperformed their cyclical counterparts and exposures to offshore earners were impacted by the higher AUD.
• Allocations to the Atrium Equity Opportunities Fund had positive contributions from Lovisa Holdings, Infigen Energy and Navitas offset by detractions in AUD exposed Healthcare companies including CSL and Resmed, as well as an underweight position in Resources.
• The Portfolio's exposure to SGH ICE Fund and Bennelong ex-20 Australian Equities Fund benefited from strong contributions throughout the first half of 2017. In July, the performance contributions were not positive, however, we remain confident in our long term conviction of these allocations.
PERFORMANCE
Performance Volatility Inception
1 Month 3 Months 6 Months 1 Year 2 Years p.a.
3 Years p.a.
5 Years p.a.
Since Inception
Since Inception Date
Direct Australian Equities Portfolio -1.4% -3.6% 4.5% 2.1% 4.1% 6.6% 12.7% 11.0% 12.5% 30/09/02
Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 July 2017. Performance is after investment management fees, excludes administration and advice fees and assumes re-investment of all distributions. Past performance is not a reliable indicator of future performance.
Source: Fitzpatricks, Iress. Performance from 30 September 2010 to 31 July 2017. Performance is after investment management fees, excludes administration and advice fees and assumes re-investment of all distributions. Past performance is not a reliable indicator of future performance.
FITZPATRICKS MDA SPECIFIC PORTFOLIOS MONTHLY REPORT
• The sharp and significant rally in the Australian dollar was a dominant theme over the month, as the International Equities Portfolio was negatively impacted, producing a return of -1.3%.
• On a local currency basis the MSCI World ex Australia produced a strong positive result of 1.5%, as the outlook for global growth remains buoyant, however, in Australian dollars this was reduced to a -1.7% return.
Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 July 2017. Performance is after investment management fees, excludes administration and advice fees and assumes re-investment of all distributions. Past performance is not a reliable indicator of future performance.
International Equities PortfolioMSCI World ex Australia (Net in AUD)MSCI World ex Australia (Net Local)
• The allocation to the AntipodesGlobal Fund – Long Onlyproduced a strong relative returnof 0.1% on a AUD basis and wasable to withstand the rising dollaroff the back of strong individualstock selection.
• Emerging Markets continue tooutperform their developed marketcounterparts as a beneficiary ofa ‘risk on’ attitude and sustainedglobal growth environmentunderpinned by a resilient Chineseeconomy.
MSCI World ex Australia, (Net in AUD) -1.7% -1.6% 5.2% 10.6% 3.1% 12.4% 18.2% 6.1% 11.5% 30/09/02
MSCI World ex Australia (Net Local) 1.5% 3.1% 8.5% 16.0% 7.1% 8.7% 13.2% 8.4% 13.2% 30/09/02
PERFORMANCE
Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 July 2017. Performance is after investment management fees, excludes administration and advice fees and assumes re-investment of all distributions. Past performance is not a reliable indicator of future performance.
FITZPATRICKS MDA SPECIFIC PORTFOLIOS MONTHLY REPORT
• Over the course of July, Markets were dominated by the movein the USD Index (the US dollar relative to US trade partner currencies), which declined below 93, its lowest level since May 2016.
• This US dollar weakness proved a mixed blessing for the Portfolio. Whilst our allocation to Asian based macro manager Alphadyne, benefited through its holdingsof the Chinese Yuan, allocations to dedicated foreign exchange manager P/E Global FX Alpha Fund were dragged lower by long USD positions.
Source: Fitzpatricks, Iress. Performance from 30 September 2010 to 31 July 2017. Performance is after investment management fees, excludes administration and advice fees and assumes re-investment of all distributions. Past performance is not a reliable indicator of future performance.
PERFORMANCE
ALTERNATIVES
$900
$1,000
$1,100
$1,200
$1,300
$1,400
$1,500
Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16
Alternatives PortfoliosRBA Cash Rate
Source: Fitzpatricks, Iress. Performance from 30 September 2010 to 31 July 2017. Performance is after investment management fees, excludes administration and advice fees and assumes re-investment of all distributions. Past performance is not a reliable indicator of future performance.
• Emerging Asian markets assisted the performance of trend following trader Transtrend and systematic macro manager GMO Systematic Global Macro Trust, with both capturing strength from Asian equities.
• Subdued volatility conditions also assisted high yield credit and, when combined with strong Energy markets, drove our event driven manager Latigo to a healthy 1.7% return.
• Long short equity manager Regal Tasman, continued to enjoy a renaissance in returns driven by upbeat results stemming from Information Technology and Materials, as well as Asian equity exposures.
FITZPATRICKS MDA SPECIFIC PORTFOLIOS MONTHLY REPORT
• The Portfolio continued to deliver favourable returns over the RBA cash rate, with the allocation to the Atrium Enhanced Fixed Income Fund (AEFI) generating 0.31% in July. Holdings allocated to the Kapstream Absolute Return Income Fund returned an encouraging 0.34% for the month.
• Throughout June and July, two newprivately negotiated transactionswere placed in the Enhanced FixedIncome Fund, in very small size, but with significantly higher potential returns than existing assets in the portfolio.
Performance Volatility Inception
1 Month 3 Months 6 Months 1 Year 2 Years p.a.
3 Years p.a.
5 Years p.a.
Since Inception
Since Inception Date
Atrium Enhanced Fixed Income Fund 0.3% 0.8% 1.6% 3.0% 3.2% 0.6% 01/09/15
Bloomberg AusBond Composite Bond Index - All Maturities (TR) 0.2% 0.5% 1.9% -0.2% 3.0% 4.2% 4.3% 2.8% 3.9% 01/09/15
Source: Fitzpatricks, Iress. Performance from 1 September 2015 to 31 July 2017. Performance is after investment management fees, excludes administration and advice fees and assumes re-investment of all distributions. Past performance is not a reliable indicator of future performance.
Atrium Enhanced Fixed Income FundRBA Cash RateBloomberg AusBond Composite Bond Index - All Maturities (TR)
ENHANCED FIXED INCOME
Source: Fitzpatricks, Iress. Performance from 1 September 2015 to 31 July 2017. Performance is after investment management fees, excludes administration and advice fees and assumes re-investment of all distributions. Past performance is not a reliable indicator of future performance.
We are reviewing a number of similar transactions, and believe small exposures will allow for further diversification and contribute significantly towards performance over the coming months.
• Smarter Money Active Cash Fund returned 0.27% in July, supported by the continued strong performance of Australian seniorbank debt. The exposure to senior unsecured debt has increased over recent months as the manager has taken a favourable viewon valuations of this defensive component of the Australian bank debt market.
• Allocations to the JP Morgan Global Strategic Bond Fund (GSBF), returned 0.65% in July. Credit continued to be a strong driverof returns, where the High Yield and Investment Grade exposures within the Fund continued to add value.
the RBA’s July meeting unexpectedly referred to a discussion of a neutral cash rate of 3.5%, well above the current 1.5% setting. A subsequent speech by Assistant Governor Guy Debelle endeavoured to quell the messages from these discussions. However, the repercussions began as markets repriced rates and the Australian dollar was pushed towards 0.80 US cents late in the month, assisted also by US dollar weakness.
The US dollar weakness comes on the back of a shifting sentiment that markets have priced out any further rates tightening by the US Federal Reserve this year. Although Q2 GDP came in stronger than anticipated, at an annual rate of 2.6%1, and the labour market and economic activity continued to strengthen, overall inflation came in below the Federal Reserve’s 2% target. This softer than expected inflation has driven markets to anticipate that monetary policy will remain more accommodative for some time yet.
The US equity market continued to press higher, with the S&P 500 rising 2.1%, and the market extending its recent gains. The Telecoms sector rallied 6.4%, led by Verizon and AT&T, but it was the Information Technology
sector that continued to stand out, rising 4.3% to be up by almost 30% over 12 months (even more impressive considering the sharp declines in Google and Amazon over July). The energy sector also marginally outperformed the US S&P 500, given the higher movements in oil prices.
Outside the US, the strong move higher in oil and commodity prices led to an outperformance of Emerging Market equities, which rose 4.9% in local currency terms. China reported second quarter GDP growth figures which came in at 6.9% for Q2, exceeding expectations and warding off fears of a slowdown. The government continues to taper in its lending and capital outflow, through focusing on a bout of reforms targeted at all Chinese companies, some of which have undertaken exuberant levels of acquisitions over recent years. In Europe, the equities market pulled back slightly, partly reflecting the strength in the Euro. The European Central Bank’s (ECB) governing council mimicked the Federal Reserve and left key rates on hold, as the governing body remains adverse in upsetting any growth prospects with a premature rate hike. In general, European data continues to firm and risk appetite remains firm.
MARKET COMMENTARY
Global equity markets were mixed in July, with the US and Emerging Markets leading on the upside, but Europe and Japan lagging. In Australia, the S&P ASX 200 Accumulation Index remained relatively flat, down by -0.01%, as the local bourse trended lower, with the exception of Resources and Financials. A material and sharp rally in the Australian dollar (4.1%) occurred during the month, following buoyant Chinese economic data, which has supported commodity prices coupled with RBA commentary that has increased expectations for future rate rises.
The appreciating Australian dollar has put additional pressure on the Reserve Bank of Australia’s (RBA) balancing act of managing an appreciating currency, curbing any additional risk flowing into the housing market, and managing headline inflation. The RBA maintained the current rate on hold at 1.50% in July, however, markets have moved away from the possibility of any further policy easing, despite fairly benign business investment data and weak inflation. Much of this move was driven by a reassessment of the RBA’s stance on monetary policy late in the month. The minutes of
1 US Department of Commerce
FITZPATRICKS MDA SPECIFIC PORTFOLIOS MONTHLY REPORT
Barwon Healthcare Property Fund 0.0% 0.0% 0.0% 0.1% 0.0%
Exchange Tower Trust 0.0% 0.0% 0.0% 0.5% 0.0%
Primewest Diversified Income Trust 0.0% 0.0% 0.0% 0.1% 0.0%
APN Regional Property Fund 0.0% 0.0% 0.0% 0.9% 0.0%
Dickson Trust 0.0% 0.0% 0.0% 0.2% 0.0%
Bankstown Trust 2 0.0% 0.0% 0.0% 0.4% 0.0%
Caringbah Trust 0.0% 0.0% 0.0% 0.5% 0.0%
Greenwood Trust 0.0% 0.0% 0.0% 0.2% 0.0%
Essential Secured Notes 0.0% 0.0% 0.0% 0.9% 0.0%
Throsby Trust 0.0% 0.0% 0.0% 0.9% 0.0%
Smarter Money Active Cash 0.0% 0.0% 0.0% 5.9% 0.0%
Liquidity 0.0% 0.0% 0.0% 24.1% 0.0%
FITZPATRICKS MDA SPECIFIC PORTFOLIOS MONTHLY REPORT
Source: Atrium and External Investment Manager / Administrator websites or reports. Target weights as at 31 July 2017. Holdings within the Atrium Alternatives Fund are given on a look through basis, individual clients will not hold these funds directly. Investments denoted by * are in managed accounts accessed via the Crown Atrium Segregated Portfolio. 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 InformationThe 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. Figures are post portfolio management fees and expenses and assume reinvestment of distributions. They do not take into account inflation or tax or adviser fees.
For more information please contact your Adviser or Fitzpatricks Private Wealth:
SYDNEYLevel 5, Challis House 4 Martin PlaceSydney NSW 2000 PHONE 02 9248 8000
