December, 2020
The market put on almost 14% in the December quarter, much of it in November when vaccines were announced. The Fund underperformed this slightly but still delivered a strong absolute return for the quarter.
It benefitted primarily from holdings in resource plays Fortescue Metals, Oz Minerals and BHP, services provider Seven Group, and major bank NAB. Not owning infant formula maker A2 Milk also helped. The detractors were gold producer Newcrest, global insurer QBE, blood fractionator CSL, hospital operator Ramsay Health and; not owning consumer credit provider Afterpay Touch or major bank ANZ also hurt performance somewhat.
The fund matched the market in 2020, best contributors again being Fortescue, BHP and Oz Minerals, but also industrial property developer Goodman Group, CSL, and building products producer James Hardie. Not owning major bank Westpac or gas producer Woodside were also major positives.
The key detractors were Newcrest, QBE, Treasury Wine Estates, airline Qantas, gas producer Santos, property developer Mirvac and not owning Afterpay, ANZ or accounting software provider Xero.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/ACASF_FR_Dec-20.pdfSeptember, 2020
The Fund outperformed over the September quarter. The best contribution to returns came from industrial property play Goodman Group, copper miner Oz Minerals, iron ore miner Fortescue Metals, safety app Life 360, building materials maker James Hardie and not owning either gas producer Woodside Petroleum or infant formula maker A2 Milk. The only detraction of note was from not owning consumer credit provider Afterpay Touch.
The portfolio continues to be exposed to companies exhibiting earnings leadership across a number of thematics including a broadening of the economic growth recovery, structural growth, and stocks benefiting in some way from Covid. We think a well-diversified portfolio is always a good strategy but this is especially the case in the current environment.
Companies in the broadening growth category include Resources stocks such as Oz Minerals and BHP as well as hospital operator Ramsay Healthcare, which will benefit from normalising – or possibly even larger than normal volumes – of elective surgery as economies open up. We also expect that even a partial return of domestic flights would result in earnings for Qantas that are ahead of beaten-down market expectations.
Furthermore we have reduced our underweight to the Bank sector as the extensive Government stimulus should at least delay large scale credit losses. More structural growth stocks continue to trade quite expensively but we are maintaining some positions for which we see further earnings upside including industrial property developer Goodman Group and respiratory product maker Fischer & Paykel Healthcare.
The duration of the current Covid-impacted environment, and as a consequence the current consumer trends, remains to be seen but we suspect the earnings impact for some stocks will be both greater and more enduring than current consensus earnings reflect. Companies such as auto parts wholesaler Bapcor, Super Retail Group, Reliance Worldwide, Wesfarmers and James Hardie are in strong positions to capture the upside from consumer spending in segments such as DIY, domestic holidaying, second-hand car sales and housing repair and construction.
A more difficult call is what to do with so-called yield stocks. While the dividend yields of some companies of around 4% look attractive compared to bond yields which are currently close to zero we suspect improving earnings upside in other areas of the market might detract from that appeal. There is also some risk that the large scale stimulus we are seeing will result in higher inflation expectations and, as a consequence, cause an uptick in bond yields which would prove a challenging environment for these stocks. We have as a consequence reduced or exited some of these positions.
June, 2020
The Fund slightly underperformed the very strong market in the June Quarter. We benefitted from our holdings in data annotator Appen, global asset manager Macquarie Group, iron ore miner Fortescue Metals, insurance broker Steadfast, building materials company James Hardie, mining services company Seven Group, and diversified resource company Oz Minerals. Against that however were our positions in health care company CSL and insurer QBE. Not owning millennial payment platform Afterpay Touch or gas explorer Oil Search hurt performance somewhat.
File:ticker: HOW0019AU
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factsheet_url:
https://www.alphinity.com.au/our-thoughts/fund-reports/2020-2/
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release_schedule: Monthly
fund_features:
Alphinity Australian Equity Fund is suitable for investors aiming for a higher return compared to the market, but prepared to take on additional volatility. The Fund is a diversified portfolio of 20-35 best ideas derived from the broader Alphinity Investment Management (Alphinity) investment process. It has a suggested time horizon of at least five years and aims to meet the Fund’s investment objectives in a risk-controlled manner.
- Focused portfolio of quality large cap companies at the right point in their earnings cycle.
- Alpha will be delivered predominantly from high conviction stock selection.
- Active Share typically around 60%.
- Managed by a cohesive and experienced team that have used the proven process since 2004.
manager_contact_details: Array
asset_class: Domestic Equity
asset_category: Australia Large Growth
peer_benchmark: Domestic Equity - Large Growth Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund