September, 2023
The Equity Income Fund had a disappointing quarter, down -1.3%, lagging the benchmark’s -0.8%. The main reasons for the poor relative performance were a weak quarter by the gaming sector, where we are overweight, as well as disappointing performances by key stocks Charter Hall Retail REIT and Telstra.
Global sharemarkets declined in the September quarter as bond yields rose sharply and investors finally seemed to believe that the Fed and other central banks will keep interest rates ‘higher for longer’. Most markets fell, with the MSCI World Index down -2.4% and the NASDAQ down further, -4.0%, reversing some of its impressive recent gains.
Local markets took a lead from overseas, with the ASX 300 down -0.8 for the quarter. Energy was the strongest sector, buoyed by soaring oil prices, mainly driven by supply cuts from Saudi Arabia and Russia. Healthcare was weakest, dropping -9.0%, as rising 10-year bond yields disproportionately affected its higher valuation multiples.
These factors, as well as Reporting Season, caused an increase in volatility which helped us to capture solid supplementary option income for some of our holdings including CSL, Orica, Steadfast and Woodside Energy. We also earned good dividends from key investments in the Industrial, Financial and Material sectors.
Many of the fund’s holdings performed well over the quarter including NAB, Ampol, Orica, Suncorp and TPG Telecom. Stocks which held back performance included Charter Hall Retail, as explained below, and Telstra which dropped -8.5%, despite posting a strong result, as shareholders reacted negatively to the news it intends to retain its infrastructure business, Infraco. We believe this decision is sensible and in the long-term interests of shareholders.
During the quarter we trimmed our position in IAG as its share price had appreciated significantly, and we added to Sonic, Steadfast and Charter Hall Retail REIT over the quarter on share price weakness
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-34.pdfAugust, 2023
The Fund was down -0.9% in August, in line with the benchmark ASX 300 which was down -0.8%.
Several of our holdings were up strongly after reporting better than expected results, including Brambles, Ampol and TPG Telecom. Telstra posted a strong result but dropped on the news it intends retaining its infrastructure business, Infraco. We believe this decision is sensible and in the long-term interests of shareholders.
We earned good dividend income in August from our investments in the Financials, Materials and Industrials sectors. We also used market fluctuations to generate supplementary option premium around key holdings CSL, Steadfast and TPG.
Reporting season showed that trading conditions remain mixed. Consumer demand is slowing and inflation has reduced, but significant rises in power, insurance and wages mean the RBA can’t be complacent inflation has been tamed. We continue to act cautiously, focusing on industry-leading companies that are likely to perform well in a range of economic conditions.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-33.pdfJuly, 2023
The Fund was up +2.0%, though it lagged the benchmark ASX 300 which was very strong, rising +2.9%. The Fund lagged the benchmark partly due to some holdings pulling back after strong recent performances, including Brambles, Aurizon and Telstra. Weaker relative performance was also due to a global rally in more speculative companies.
Orica, Nine, Ampol and Virgin Money all performed well. Aurizon had a poor month, falling -3% after an investor day in Darwin underwhelmed investors on short-term earnings, despite the company detailing a positive long-term growth strategy.
As the market fluctuated ahead of the August reporting season, we generated good supplementary premium by selectively writing options at our targeted entry and exit prices in key stocks such as CSL, Medibank Private, Steadfast and Woodside.
Despite euphoria around a possible 'soft landing', many companies face headwinds. Consumer demand is slowing and inflation has reduced, but significant rises in electricity and gas, insurance, and services wages mean inflation must still be contained. We continue to act cautiously, focusing on companies that are likely to perform well in a range of economic conditions.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-32.pdfJune, 2023
The Equity Income Fund had a solid quarter, returning +1.9%, ahead of the benchmark’s +1.0%. This took the Fund to a solid return for the full financial year of +11.1%.
Global markets had a very strong quarter with the MSCI World Index up +6.7%, led by the Nasdaq, +13%. The gains were partly driven by optimism that the rate-rising cycle was near its end, as well as excitement about AI after US chipmaker Nvidia significantly upgraded its forward guidance. This caused a narrow-focused rally, driving markets higher. Implied volatility remained elevated as the market tried to predict the end of the interest rate rising cycle.
The ASX 300 lagged global markets, rising +1.0% for the quarter, as the strong lead from overseas markets was tempered by somewhat unexpected RBA rate hikes which made investors more cautious. Information Technology was by far the strongest sector, rising +18.4% as tech stocks rallied in line with overseas markets. Materials were weaker in line with lower commodity prices and consumer facing sectors also struggled as interest rates continue to bite.
The Fund benefitted from strong performances from Aurizon, as explained below. IAG and Suncorp also were also up significantly amid continuing good trading conditions for the insurance sector. Premiums are increasing significantly, and investment income is benefitting from higher rates. Amcor was disappointing over the quarter, falling after it downgraded its outlook due to food and beverage companies destocking, as well as weakening demand from end customers.
We used share price weakness to increase our positions in Charter Hall Retail REIT and NAB and heightened share prices to trim our position in IAG.
As usual, we selectively used the daily market fluctuations to generate decent supplementary option income around some of our key holdings such as BHP, Coles, IAG and Santos. At the end of the quarter, the Fund earned good distribution income from its core trust investments including APA, Charter Hall Retail and Transurban.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-31.pdfMay, 2023
The Fund was down -1.7% in April, ahead of the benchmark ASX 300, which dropped -2.5%.
Many of our key holdings performed well during the month. Our relative performance was buoyed by low exposure to consumer discretionary retailers, which fell heavily due to the interest rate rise which took some investors by surprise. Aurizon performed strongly, up 4%, continuing its recent rise as haulage volumes improve. Tabcorp also did well, up 9%, as confidence increased in its Victorian licence renewal. Amcor had a poor month falling 8% after it downgraded its outlook due to weakening packaging volumes.
The Fund earned attractive dividend income from several core investments in May as the market fluctuated. We generated good supplementary premium by writing options around some of our holdings including Ampol, Coles, IAG and Orica.
Economies still face significant issues, setting a challenging backdrop for companies. Consumer demand has slowed but is still robust compared to pre-Covid trends. Inflation is proving persistent, with wage gains and house prices ticking up. Further interest rate rises are probable. We continue to act cautiously, focusing on industry-leading companies with strong competitive advantages and recurring earnings that are likely to perform well in a range of economic conditions.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-30.pdfApril, 2023
The Fund was up +2.5% in April, ahead of the benchmark ASX 300, which rose +1.8%.
The main reasons for the Fund’s better relative performance were strong performances by many of our key holdings, as well as a poor month for the large iron ore miners which we remain cautious of due to their cyclicality. IAG, TPG, Orica, Brambles, Telstra and Virgin Money were all up strongly in April. The Lottery Corporation had a disappointing month, dropping slightly after smaller jackpots impacted revenue.
We opportunistically used April’s strong market rally to generate solid option income by writing call options for Coles, Newcrest Mining, Orica and Transurban; and put options at our desired entry prices for APA, BHP and CSL.
The continuing sharemarket strength implies a belief in a painless retreat from high inflation as well as an early easing of interest rates. There are risks to this scenario, with inflation only likely to fall with consumer belt tightening and a rise in unemployment. The companies in the fund are well-established with competitive advantages and recurring earnings, making them more resilient and likely to perform well in a range of different economic conditions.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-29.pdfMarch, 2023
The Equity Income Fund performed well over the quarter, +2.8%, slightly lagging the benchmark’s +3.3%.
The MSCI World Index was up +7.2% for the quarter, similar to the prior quarter. However, it has been a more volatile ride. Markets rose strongly at the start of 2023, then fluctuated as investors’ fears about interest rates, inflation and a slowing global economy waxed and waned. Things came to a head in March as a US regional banking crisis unfolded and spread to Europe, then eased as regulators took steps to calm markets.
The ASX 300 lagged global markets, up +3.3%, with mixed performance at a sectoral level. Most sectors were up, with Consumer Discretionary strongest, up +10.8%, driven by investors’ willingness to take on more risk and some strong individual performances followed by Communication Services (up +9.5%) off the back of Telstra’s strong performance. Financial Services was the weakest, down -2.7%, on worries about the unfolding banking crisis and mortgage competition. Real Estate also was down slightly on concerns of falling commercial property values and rising interest rates.
The Fund benefitted from strong performances from Telstra, Brambles, Medibank and The Lottery Corporation after they announced strong first half FY23 results. Sonic Healthcare also performed well, rising as it reported strong underlying earnings despite its overall revenue dropping as the Covid testing bonanza faded.
Aurizon’s performance held the fund back over the quarter as it announced lower-than expected earnings due to poor weather. Amcor was also down as it reported declining packaging volumes in some categories. We believe the issues for both stocks are temporary and we are confident in their long-term prospects.
We opportunistically used the heightened volatility to supplement the Fund’s dividend income with solid option premium written around some of our investments including Coles, Sonic Healthcare, Suncorp and Woodside Energy.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-28.pdfFebruary, 2023
The Fund performed well in February, up +1.0%, well ahead of the benchmark ASX 300, which dropped -2.5%.
The main reasons for the Fund’s better relative performance were resilient performances by many of our holdings, which announced positive results in reporting season including Brambles, Medibank and The Lottery Corporation, as well as a sell-off in the Resources companies where we remain cautious. Aurizon had a disappointing month, sold down after its earnings were lower due to poor weather.
The Fund earned solid dividends from many of its core investments in February as well as using the elevated volatility to earn attractive option income on holdings like Brambles, Coles, Medibank Private and Woodside Energy.
Global markets were weaker during February as inflationary concerns resurfaced and bond markets sold off. We continue to position the Fund in well-established, profitable companies that are well-positioned to perform well in these uncertain economic conditions, while staying alert to any opportunities that the current market volatility brings.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-27.pdfJanuary, 2023
The Fund had a solid month in January, up +2.1%, although behind the benchmark’s return of +6.3%.
Many of the Fund’s holdings performed well including Coles and Newcrest. We also selectively used the daily volatility to earn solid option income on some of our key holdings including Coles, National Australia Bank and Sonic Healthcare.
The Fund’s relative performance suffered due to our lower weighting in the Resources sector and the major banks, both of which rallied strongly over the month. Some stocks also disappointed, pulling back after recent strength, including Orica and Brambles.
We remain wary of the recent strong sharemarket rally given that markets seem to now be factoring in an orderly retreat from high inflation and an early easing of interest rate increases. We believe there are risks to this scenario, so we continue to position the Fund in well-established, profitable companies with strong market positions that we believe represent sound long-term value.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-26.pdfDecember, 2022
The Equity Income Fund was up strongly over the quarter, rising +8.8%, slightly behind the benchmark’s +9.1%. Importantly, the Fund also reported a very strong result for the calendar year of +7.8%, which compares very favourably to the benchmark’s drop of -1.8%
The MSCI World Index was up +7.5% for the quarter, thanks to strong gains in October-November, although global markets dipped again in December as concerns resurfaced about the global economy slowing in 2023 as interest rates continue rising around the globe.
For the ASX 300, the Utilities sector was the strongest performer, up +28%, due mainly to a $9 a share bid for Origin Energy by Brookfield Asset Management. The Materials sector also rose strongly to finish the quarter up +14.7% as BHP, Rio and Fortescue all had very strong quarters, rising on a stronger iron ore price in hopes that demand for the commodity will increase rapidly as China reopens its economy, reversing its draconian Covid lockdown policies.
The Fund benefited from very strong quarters by several key stocks. Origin Energy’s share price jumped after the bid by Brookfield. Orica and Virgin Money also rose significantly over the quarter, after they both announced strong FY22 results. Steadfast and Suncorp also performed well as investors factored in rising insurance premiums.
SkyCity had a tough quarter after Austrac announced proceedings against it in relation to AML breaches at its Adelaide casino, while Medibank fell heavily after a well-publicised cyber-attack and Pact dropped after a disappointing trading update.
We used the market swings to earn supplementary income by selectively writing options at target entry and exit prices on some of our holdings including Amcor, Orica and Woodside Energy.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-25.pdfNovember, 2022
The Fund had a strong month in November, up +4.6%, although behind the benchmark’s return of +6.5%.
Many of the Fund’s holdings performed well including Orica, Virgin Money UK, and The Lottery Corporation. The Fund also used daily market fluctuations to earn solid option income from core holdings including Amcor, Orica and NAB.
The Fund’s lower relative performance was mainly due to our lower weighting in the Resources sector, which rallied strongly on optimism that China may ease its Covid restrictions – although we remain cautious on the sector given it is so cyclical.
Markets were up strongly in November despite many uncertainties. We continue to position the Fund in well-established, profitable companies with strong market positions while looking for opportunities to buy further high-quality companies.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-24.pdfOctober, 2022
The Fund had a strong month in October, up +4.8%, although behind the benchmark’s (ASX 300) return of +6.0%.
As the market continued to fluctuate with inflation and interest rate uncertainty, we opportunistically used the daily movements to earn solid option income on some of our holdings such as Amcor, Newcrest Mining and Woodside Energy.
We expect conditions to remain volatile given the continued economic uncertainty as we head into 2023. We will use times of market weakness to add to the Fund’s positions in well-established, profitable companies with strong market positions.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-23.pdfSeptember, 2022
The Equity Income Fund had a disappointing quarter, declining -2.5%, behind the benchmark’s return of +0.5%.
The main reasons for the poor relative performance over the quarter were that we are underweight to the Resources sector which held up well, as well as some disappointing performances from some of our core holdings on no material news – such as Orica and Newcrest Mining. Also detracting from performance was a sub-par quarter for some of the Fund’s mid cap holdings, including TPG and Aurizon, where we believe the investment case still remains positive.
Global markets had a very volatile quarter, up significantly for July and most of August before dropping sharply in September as bond markets sold off as it became clear that the US Federal Reserve - and other Central Banks around the world - would continue to follow through on their commitment to raise interest rates in order to bring inflation back under control.
While both the MSCI World Index and the S&P 500 fell around -5% for the quarter, the ASX300 went against the trend and rose +0.5%. This was partly due to the RBA’s current less aggressive interest rate rises, which contributed to the Aussie dollar falling 7% against the US dollar for the quarter and helped the Resources sector rise.
The Fund benefited from good performances from Brambles and IAG over the quarter, as both companies appear set to record improvements in their earnings in the years ahead despite the uncertain economic outlook. As the market fluctuated with macroeconomic and earnings outlook uncertainty, we used the elevated volatility selectively to earn solid supplementary income by writing options at our target entry and exit prices in some of our stocks including Ampol, Brambles, Coles and Woodside Energy.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-22.pdfAugust, 2022
In a volatile month the Fund’s return was disappointing, down -0.2%, while the benchmark was up +1.2%.
The main reason the Fund’s performance was lower than the benchmark was the strong performance of the Resources sector over the month, which we have low exposure to due to its high volatility and cyclical nature.
As the market fluctuated in August with macroeconomic and earnings outlook uncertainty, the Fund opportunistically used the daily volatility to earn solid supplementary option premium over some of our holdings such as Coles, Incitec Pivot and Telstra.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-21.pdfJuly, 2022
The Investors Mutual Equity Income Fund provides exposure to a diversified portfolio of quality Australian shares for investors seeking a regular and relatively high-income stream and lower levels of volatility compared to the ASX300, along with some capital growth over time.
The Fund had a strong month in July, up +3.7%, continuing on from its good performance in FY 2022, although it lagged the benchmark for the month.
As the market rallied in July, the Fund took advantage of share price rises to write attractive call option premium over some of our holdings including Brambles, Orica and Suncorp.
We also opportunistically trimmed our holdings in stocks such as Shopping Centres Australasia Property and Steadfast as they rallied strongly, while adding to the Fund’s holdings in defensive stocks such as Ampol and Metcash on price weakness.
June, 2022
The Equity Income Fund had a tough quarter, finishing down -3.4%, though this was significantly ahead of its benchmark’s negative return of -12.2%. Pleasingly, the Fund managed to return a very solid result of +8.6% for financial year 2022, despite very challenging investment conditions which saw the ASX 300 Accumulation Index drop -6.8% for FY 2022.
Global markets had a very tough quarter as bond markets sold off heavily and Central Banks all over the world responded to rapidly rising inflation by raising their overnight interest rates. Other major global uncertainties weighing down markets – including the Ukraine-Russia war and the Covid restrictions in China – added further anxiety for investors.
Over the June quarter, the implied volatility of the options market increased significantly as global markets fluctuated in response to rising interest rates and growing fears of a serious economic slowdown. This enabled us to use the daily market swings to earn the Fund very solid option premium on some of our key holdings such as BHP, Brambles, Coles and Orica.
Over the quarter, we also opportunistically used the heavy sell-off in the Real Estate sector to increase the Fund's holding in defensive REITs such as Abacus Property and Charter Hall Retail when their distribution yields approached 6%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-19.pdfMay, 2022
The Fund’s unit price declined -1.3% for the month - while disappointing this was significantly ahead its benchmark, which fell -2.8%.
We used the elevated volatility over the month of May to write attractive option income over some of the Fund's holdings in good quality stocks such as BHP, Brambles and Orica.
We also used market weakness to selectively increase the Fund's holding in defensive REIT's such as Abacus Property and Charter Hall Retail when their distribution yields approached 6%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-18.pdfApril, 2022
The Equity Income Fund performed strongly in April, up +1.9%, which was significantly better than the benchmark’s -0.8% return. The strong performance was due to many of the Fund’s core holdings in well-established, good quality companies performing well including Aurizon, Brambles and Amcor.
Over April, option volatility increased significantly as global markets fluctuated in response to rising interest rates. The Fund used this heightened volatility to earn higher premiums by selectively selling options around the Fund’s holdings such as Coles, Sonic Healthcare, Transurban, and Woodside Petroleum.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-17.pdfMarch, 2022
The Equity Income Fund delivered a strong return of +5.2% for the March quarter, well ahead of its ASX 300 benchmark, which was up +2.1%.
Over the March quarter, volatility rose significantly due to the Russian invasion of Ukraine which led to the imposition of various sanctions on Russian commodity exports. This led to surges in the prices of various commodities such as wheat and oil and also raised inflationary and interest rate hike expectations. The major Banks also performed well on expectations of interest rate rises and the positive flow on effect this could have on their net interest margins.
The Fund used the elevated market fluctuations to opportunistically supplement its dividend income with option premium written around some of its core holdings including Alumina, Amcor, Coles, Origin Energy and Suncorp.
The Fund also benefited from the completion of the AusNet takeover by Brookfield, continued progress towards completion of the proposed Crown Resorts takeover and the demerger of The Lottery Corporation by Tabcorp.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-16.pdfFebruary, 2022
The Equity Income Fund delivered a strong return of +3.4% for February, ahead of the ASX300 benchmark’s +2.1% return.
The Fund earned good dividends from many of its core investments in the Industrial, Energy and Material sectors.
We used elevated market volatility to opportunistically write attractive option premium around holdings such as Alumina,
Coles, Origin Energy and Woodside Petroleum.
January, 2022
The Investors Mutual Equity Income Fund was down -1.7% in January, which although disappointing was much better than the benchmark’s fall of -6.5%. Our focus on investing in stocks that we believe offer both value and quality held the portfolio in good stead, due in part to our zero weighting in speculative and concept driven companies which were badly hit. The portfolio benefited from our holdings in good quality companies such as Orica, Aurizon, AusNet (under takeover), Amcor, Incitec Pivot and Origin which all finished the month higher.
Detractors over the month included Steadfast and Brambles, which were both caught up in the volatility, however given their position as leaders in their respective industries we remain confident in their medium-term outlook. The Fund benefited from the positive outcome of the AusNet scheme meeting and reinvested some of the M&A proceeds in sound REITs such as Shopping Centres Australasia and Charter Hall Retail which offer 5-6% in sustainable yield. In addition, we used the elevated market volatility in January to generate solid option income around some of our investments including Coles, Origin Energy, Suncorp and Transurban. Central banks around the world seem poised to raise interest rates in reaction to CPI numbers which have reached levels the world has not seen in almost 40 years. Whilst headline inflation levels will eventually normalise, it is now becoming increasingly evident to many investors that the prospect of ultra-low interest rates could soon be a thing of the past. We believe that in this environment, the worst impacted will be many high-flying, concept and often purely speculative parts of the sharemarket – many of which were buoyed in the last few years by speculators using this cheap money.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-14.pdfDecember, 2021
The Investors Mutual Equity Income Fund had a positive year returning +18.4% which was ahead of the benchmark’s return of +17.5%. The Fund’s performance was helped in the second half by what we see as the start of a return to more fundamental investing with the prospect of the end of free money looming large. Takeover bids for good quality companies which were trading at very attractive valuations also helped. Our core holdings in Telstra, Tabcorp, AusNet (under takeover), Amcor, Incitec Pivot and Suncorp all enjoyed a strong year.
For the final quarter of the year, the Fund posted a solid return of +2.3%, broadly in line with the benchmark. Our caution to the Resources sector weighed on relative returns although we remain comfortable with this positioning given high commodity price levels and the inherent volatility in the sector - as we saw during 2021 with the iron ore price halving in value. Over the quarter the portfolio benefited from its holdings in Telstra, Crown Resorts (under takeover), Incitec Pivot and Steadfast. Conversely, IAG and Pact Group endured a weaker quarter on short term impositions, and we remain very confident in the longterm outlook for both businesses, especially in light of their attractive valuations and strong positioning in their respective industries. Over the December quarter, volatility was elevated with rising bond yields and renewed uncertainties due to the emergence of the new Covid variant Omicron. The Fund utilised the daily market fluctuations to earn supplementary income by selectively writing options at target entry and exit prices on some of our holdings including Alumina, Ampol, Incitec Pivot, Newcrest Mining and Tabcorp. The Fund benefited from the completed acquisition of Spark Infrastructure (receiving a fully-franked 12c special distribution). We also participated in CSL’s discounted capital raising to help fund the acquisition of Swiss pharmaceuticals company Vifor Pharma which specialises in renal disease and iron deficiency.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-13.pdfNovember, 2021
The Investors Mutual Equity Income Fund had a relatively flat month down -0.1 but ahead of the benchmark’s -0.5% fall. The Fund’s limited exposure to the Resources sector, in particular the iron ore majors, held back relative returns, however we remain very comfortable with this positioning given the inherent volatility. IAG’s share price fell following a downgrade to short-term earnings expectations due to an abnormally high number of weather events. While IAG may experience shortterm earnings volatility, in our view the company’s long-term fundamentals remain sound. Orica’s share price retreated, following a strong rise over the past three months, as investors took profits after the company released its FY21 results. These results showed that that the company is on track to record better profits in the years ahead thanks to a combination of improved efficiencies, better product pricing and a recovery to normal volumes post-covid lockdowns. The Fund’s holdings in companies such as Telstra, Steadfast, Nine Entertainment and Crown (which rallied following news of a new $12.50 takeover offer from Blackstone) all enjoyed a strong month
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-12.pdfOctober, 2021
Global equity markets rebounded strongly in October with the MSCI World index returning +5%. The gains were led by the US, with the S&P500 gaining +7%, capping its strongest month this year and returning the index to record highs following last month’s -5% pull back. Despite weaker than expected GDP growth and soft results from both Amazon and Apple, given ongoing supply chain disruptions and tightening in the labour market, US Q3 reporting season proved robust with the majority of companies beating earnings expectations. Across the Atlantic the mood was equally buoyant with Europe’s Stoxx50 index returning +5.2%.
Given increasing inflationary trends, bond markets endured a volatile month as investors attempted to predict central bank policy in the wake of accelerating CPI data. Both the US and Australian yield curves experienced significant flattening with short-dated bond yields rising meaningfully on the expectation that central banks will have to act more swiftly than previously expected to stem inflationary pressures. Commodity markets remained volatile. The oil price gained a further +7.5% reaching its highest price in over three years as OPEC resisted calls to increase output. Energy markets in general continued to whipsaw with both the coal and European natural gas prices beholden to severe supply disruptions. Copper, a bellwether for global manufacturing activity, surged a further +10% driven by low inventories in both Europe and China
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-11.pdfSeptember, 2021
The Investors Mutual Equity Income Fund enjoyed a strong quarter, returning +4.4%, which was much better than the benchmark’s return of +1.8%. The Fund benefited from the performance of many of our core holdings such as AusNet, Incitec Pivot, Telstra, Amcor, Origin Energy, Woodside Petroleum and Orica. The Fund also benefited greatly from its limited exposure to iron ore companies as we have been wary of the highly elevated level of the iron ore price for some time.
Over the September quarter, the Fund earned solid dividends from its key Industrial holdings while we used the increased market volatility over the quarter to earn additional income for the Fund by writing incremental option premium around some of the Fund's core stocks such as Alumina, Brambles, Incitec Pivot and Woodside Petroleum. The Fund also participated in Transurban’s capital raising to help acquire the remaining WestConnex equity stake from the NSW Government.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-1-1.pdfAugust, 2021
The Investors Mutual Equity Income Fund enjoyed a strong month, returning +3.0%, which was better than the benchmark. The Fund benefited from the performance of many of its core holdings such as Steadfast, Amcor and IAG which all gained following the release of strong FY21 earnings. Additionally, the KKR takeover of Spark Infrastructure also benefited performance. In August, the Fund earned solid dividends from many of its core holdings and used market volatility to earn supplementary option premium around those underlying stocks such as Alumina, IAG, Suncorp and Telstra.
The Australian sharemarket continues to trade at record levels with seemingly very little on the horizon to halt its ongoing rise. Having said this, we continue to steer away from some of the riskier parts of the sharemarket and remain focused on good quality companies which are well-managed, where valuations remain justifiable, and which we believe can do well over the next 3-5 years. To this end we remain very comfortable where IML’s portfolios are positioned.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-10.pdfJuly, 2021
The Investors Mutual Equity Income Fund had a disappointing month returning -0.6% and behind its benchmark’s return of +1.1%. Our caution to the ever-volatile Resources sector held back the Fund’s relative performance although we remain comfortable with this positioning given the record prices across both iron ore and most base metals. The Fund’s performance was held back by disappointing performances from core stocks such as Orica and IAG although we remain confident on these companies’ medium-term outlook as they recover from COVID-induced issues. Our holding in Crown also detracted from the Fund’s performance as the share price came under pressure as the Victorian Royal Commission continued into the suitability of the company to hold its Melbourne licence and Star Entertainment Group backed out of merger talks. We continue to monitor the situation closely although remain hopeful that the significant changes implemented at Board and senior management level as well as the company’s strong property holdings will enable the company to recover. Our holdings in good quality industrial companies such as Amcor, Spark Infrastructure and AusNet all performed well over the month. In July, we used the daily market volatility to write good option income around some of our key holdingsi ncluding Alumina, Aurizon, Nine Entertainment and Tabcorp.
Investors will now look to the August reporting season to gain a detailed insight into how most companies are faring in the current COVID situation. The Australian sharemarket continues to trade at record levels with seemingly very little on the horizon to halt its ongoing rise. Having said this, we continue to steer away from some of the riskier parts of the sharemarket and remain focused on good quality companies which are well-managed, where valuations remain justifiable, and which we believe can do well over the next 3-5 years.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-9.pdfJune, 2021
The Investors Mutual Equity Income Fund posted a positive return of +19.7% over the financial year, although this was behind the market’s strong return of +28.5%. The market was very volatile over the past year, and the rallies in the more speculative or cyclical sectors such as Technology and Resources held back our market-relative performance. Our portfolio’s positioning in more defensive quality companies weighed on the Equity Income Fund’s market-relative return, although we remain very comfortable with the Fund’s positioning.
The Fund paid a distribution of 1.0988 cents per unit for the June half, taking the total distribution for the financial year to 5.1488 cents per unit representing a fullyear distribution yield of 6.54%. Over the final quarter of FY20, the Fund returned +3.4%, below the benchmark’s strong return of +8.5%. Over the June quarter, the Fund benefited from its holdings in good quality industrials such as Telstra, Suncorp, Tabcorp, and Steadfast Group. Over the quarter, we trimmed our exposures to stocks such as Brambles, Commonwealth Bank of Australia, Shopping Centres Australasia, and Tabcorp. We used the funds generated from these sales to top up in good quality companies such as Alumina, Aurizon, IAG, Orica, and Origin Energy, which in our opinion all represent compelling valuations, especially given their medium to long-term prospects, which the market is yet to appreciate.
Over the quarter, we also used the strong market conditions to write select call options over some of our key holdings including Amcor, Coles, Tabcorp, and Telstra, to supplement the underlying dividends. Conversely, we opportunistically targeted attractive entry prices in sound companies such as Sydney Airport and Transurban with written put options when the market sold off. The Equity Income Fund also earned good distribution income from positions including Abacus, Charter Hall Retail, Shopping Centres Australasia, and Transurban
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-8.pdfMay, 2021
Global equity markets finished their fourth consecutive month higher, with the MSCI World Index returning +1.1% as ongoing confidence in the global economic recovery grows as vaccination programmes accelerate. While the US S&P500 Index held on to its gains for the month, returning +0.7%, the tech-heavy NASDAQ Index came under increasing pressure, shedding -1.4% as investors’ inflationary concerns and the prospect of higher bond yields weighed on fullypriced tech valuations. Indeed, US inflation accelerated at its fastest annual pace in over a decade as the economic
recovery kicked into gear. Across the Atlantic the mood was similarly positive as economies emerge from lockdowns in time for the summer tourism season, with European bourses enjoying a solid month, the EuroStoxx50 Index returning +2.3%. Domestically, the mood remained upbeat following the release of the Federal Budget, with government fiscal largesse continuing to aid the post-COVID recovery. Commodity prices were strong through the month, with the iron ore price gaining +7.8% and holding its level above US$200 per tonne despite Chinese overtures about punishing “excessive speculation” in commodity markets. The oil price gained a further +3% as stockpiles built up during the pandemic continue to run down as economies reopen. Increasing inflationary concerns courtesy of the magnitude of economic stimulus and continued low interest rates also helped the gold price gain +7.5% for the month, to finish above US$1,900 an ounce.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-7.pdfApril, 2021
Global equity markets enjoyed another strong month, with the MSCI World Index returning +3.7%. The US S&P500 and the tech-heavy NASDAQ indices led the charge, both returning +5.3% and in so doing set new record highs throughout the month. Investors were emboldened following a streak of strong third quarter US company earnings reports, buoyed by record US household disposable income as a result of the passing of President Biden’s American Rescue Plan, which included US$1,400 stimulus payments to US households. Across the Atlantic, the mood was a little less sanguine, with Europe’s Stoxx50 Index returning +1.9%, reflecting investors’ concerns about the continent’s slow rollout of the vaccination programme, which continues to impede economic recovery. The result of the significant amounts of stimulus supporting equity markets is increased inflationary expectations, with many companies across the globe reporting pricing pressures for inputs, which in turn are passing through to customers as price rises. Additionally, it was reported that US labour costs jumped the most in 14 years as companies boost production to cater to pent-up demand
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-6.pdfMarch, 2021
Global equity markets enjoyed a strong first quarter of calendar 2021, returning +5.9% thanks to continued investor optimism as the global economy recovers from the turmoil caused by COVID-19 and as vaccines are rolled out around the world. These gains were made despite the headwinds of a substantial selloff in bond markets. The benchmark US 10-year bond rose 0.5% to a 12-month high of 1.7% by the end of March on inflationary fears as a combination of continued strong fiscal stimulus, strong commodity prices and continued record low overnight interest rates stoked investor concerns. Over the quarter President Biden’s US$1.9 trillion stimulus package was approved, with the new President now looking to get a proposed US$2 trillion infrastructure plan approved by Congress, while in Australia the Federal Government unveiled a $1.2 billon tourism support package.
The US S&P500 Index recorded fresh record highs in March, pushing through the 4,000 level for the first time. The S&P500’s return of +6.1% for the first quarter marked the index’s best 12-month rolling return since 1936 and a staggering +80% return since the March 2020 lows. Across the Atlantic, Europe’s Stoxx50 jumped +10.7% for the quarter, while Japan’s Nikkei Index returned +6.9%. Encouragingly, we saw the value style of investing as the main driver of quarterly returns, with the frothier end of the market coming under pressure
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-5.pdfFebruary, 2021
A surge in bond yields late in the month caused volatility in global equity markets as investors grew increasingly wary about the potential for higher inflation. Yields on US 10-year bonds experienced one of their largest monthly spikes in modern times, rising 0.5% to a 12-month high of 1.4%. There are growing fears that central banks may have to raise interest rates earlier than expected, driven by the recovery in global economic activity, optimism about the COVID-19 vaccine rollout, the passing of President Biden’s US$1.9 trillion stimulus package, and the significant amount of easy money sloshing through the system. Despite shedding -3% in the final week of the month, the MSCI World Index still finished the month up +2.4%. Similarly, the US S&P500 Index finished the month +2.7% higher, setting a new record high before inflationary fears sent ripples through the market. The tech-heavy NASDAQ Index finished the month only slightly higher after shedding -7% during a difficult final week of the month.
In Australia, the 10-year bond yield jumped over +0.7% to 1.9%, its highest level in nearly two years. The result saw the Reserve Bank of Australia ratchet up its quantitative easing programme late in the month by targeting longer-dated bonds in a bold move as the RBA looked to flatten the yield curve. Commodities all ended higher thanks to US$ weakness and optimism over world growth as COVID-19 is brought under control. The iron ore price rallied a further +10%, while oil gained +18% over the month, returning to pre-pandemic levels, spurred on by the announcement of Saudi production cuts and improving demand. Similarly, the copper price jumped +16% on expectations of increasing demand.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-4.pdfJanuary, 2021
After starting the year in positive fashion, global sharemarkets came under pressure in the back half of January, and the MSCI World Index finished the month in negative territory. The US S&P500 Index retraced from record highs to finish -1.0% lower, while Europe’s Stoxx50 Index shed -1.9% as bond yields around the world rose on expectations of higher economic activity and inflationary expectations as the COVID-19 vaccine rollout continued across the globe. Market sentiment was also affected as some high-profile short squeezes of US stocks such as GameStop and AMC Entertainment saw the share prices of these companies balloon after retail punters charged in en masse. This reminded investors about the speculative excesses currently abounding in some sections of the sharemarket as zero interest rates, Central Banks money printing via QE progammes and huge fiscal stimulus programmes have encouraged excessive risk-taking by many market participants.
Commodity prices were mixed over the month. The oil price gained a further +7% following a surprise production cut from the Saudis, acting independently from OPEC, to help support the oil price amid faltering global demand. The iron ore price came under pressure following a near +40% rise in the final quarter of 2020, with increased supply coming online from Brazil, coupled with China’s scrap steel market reopening and China importing scrap steel from Japan as China endeavours to reduce its reliance on Australian iron ore.
The Australian sharemarket, as measured by the ASX300 Index, suffered a similar fate to its global peers, selling off in the latter part of the month to finish January flat. The Resources sector came under pressure late in the month, finishing January -0.6% lower, largely as a result of a cooling iron ore price, with miners such as Fortescue Metals falling -7%. Within the Industrials segment sector performances were mixed over the month. The REITs sector fell -4% in sympathy with the uptick in bond yields, while the Consumer Discretionary sector rallied +5% over the month off the back of solid trading updates from the likes of JB Hi-Fi and Super Retail Group, which have continued to benefit from the current surge in consumer spending. The Consumer Staples sector also had a strong month, benefiting from strong share price performance from supermarket operators, which continue to enjoy positive sales momentum. Telstra also had a good month, gaining +5% as the firm’s 5G network continues to be rolled out across Australia and as investors look forward to more rational pricing in the mobile sector following public comments from the recently appointed Optus CEO about Optus’ desire to seek to achieve better returns.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-3.pdfDecember, 2020
The Investors Mutual Equity Income Fund had a disappointing calendar year 2020, recording a return of -10.1%, compared with the benchmark’s return of +1.7%. While many of our core holdings in well-managed, good quality industrial companies such as Metcash, AusNet and Coles all contributed positively over the year, our low weightings to the Resources, Banking and IT sectors, which all finished the year strongly, impacted the Fund’s relative performance. The Fund paid a distribution of 1.4 cents per unit for the December quarter.
For the final quarter, the Fund posted a solid gain of +10.9%, although this was behind the benchmark’s strong return of +13.8%. Our caution to the highly cyclical sectors, such as Technology and Resources, held back our relative performance as these sectors rallied significantly over the final quarter. Our positioning to good quality companies such as Tabcorp and Telstra contributed positively to returns.
We took advantage of the market rotation back to cyclical/value stocks to earn good incremental income by writing call options over some of our holdings including Alumina, Amcor and Woodside Petroleum. Conversely, we targeted attractive entry prices in sound researched companies such as Sonic Healthcare, Tabcorp and Woolworths with written put options.
Telstra (TLS) had a strong quarter as investors responded positively to the company’s announcement at its November investor day that it will split its business into three separate businesses: infrastructure divisions named ‘InfraCo Towers’ and ‘InfraCo Fixed’, and an operating division ‘ServeCo’. In our view this will help realise the value of Telstra’s extensive portfolio of infrastructure assets which have been underappreciated and undervalued in the past. The restructure is expected to be completed by the end of 2021. Telstra also reiterated its full year guidance and upgraded its return on invested capital target for 2022.
Insurance Australia Group’s (IAG) share price was weak this quarter, following a surprise loss in its first business interruption insurance test case in November, which has since been appealed. Following the judgement, IAG announced an $865m post tax top-up provision and a $750m capital raising. Although business interruption test cases will take time to resolve, we believe that IAG has been considerably more conservative than its peers and has over-provisioned in response to the November court decision.
Metcash (MTS) reported strong results in December for the 6 months ended October 2020 for its food, hardware and liquor businesses. The ongoing strength reflects a move to shop local, dine at home and DIY home improvement. The standout for us was the hardware division where the company posted very strong result and encouraging commentary on its recent acquisition of Total Tools, a business focussed on high quality tools for professionals. We added to our position in Metcash significantly over 2020 ,as the company’s prospects remain positive for the next few years.
Virgin Money UK (VUK) performed strongly, with the share price up +87% in the December quarter, having sold off heavily earlier in the year on concerns about a hard Brexit and weak UK economy. We used the strength in the share price to trim our position, although it remains a core holding across our funds, trading at a substantial discount to book value, in stark contrast to the Australian major banks
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-2.pdfNovember, 2020
Global equity markets enjoyed one of their strongest months on record, surging on optimism about Joe Biden’s US Presidential Election victory and a series of breakthroughs in the development of a COVID-19 vaccine. The MSCI World Index returned +11% over the month, driven by strong gains in the US S&P500 Index, which reset fresh record highs following weakness in October, and the Dow Jones Index, which pushed through the 30,000 level for the first time in its history and enjoyed its strongest month since 1987. Across the Atlantic, the mood was even more effervescent, with Europe’s Stoxx Index returning +19%, catching up some of its recent relative underperformance compared with US indices. Despite record numbers of COVID-19 cases across the world, investor optimism was buoyed by signs that President-elect Joe Biden will make a relatively smooth transition into the White House, as well as positive vaccine news from Pfizer and Moderna. This news drove a strong rotation into companies that were deemed to be well-positioned for the reopening of economies and the much hoped for return to normality, while many concept and fad stocks lagged the market. The Energy sector within the S&P500 enjoyed its best month on record, surging by +34%, while airlines, airline manufacturers such as Boeing as well as cruise line and theme park operatorssuch as Disney all had a very strong month.
Domestically, the Reserve Bank of Australia cut the cash rate by a further 0.15% in early November, taking the cash rate down to a new record low of 0.10%, while also announcing a further $100 billion in bond purchases as part of its quantitative easing programme. Commodities experienced a very strong month off the back of the vaccine breakthrough. Oil was the standout, gaining +27% as investors repositioned for the likelihood of greater oil consumption as economies reopen. Iron ore also firmed by a further +11% to the $130/tonne level. Thanks to strength in commodity prices, the AUD had a strong month, gaining +5% against the USD as it rallied to the 74-cent level, despite continued concerns about the diplomatic stoush between Australia and China which has led to new trade tariffs and import restrictions by the Chinese. The strong rally in global equities saw the Australian sharemarket, as measured by the ASX300, produce its best month on record, returning +10.2% in November. The Resources sector gained a further +10%, the driving force being the Energy sector’s +30% return in line with the higher oil price. Financials led the way within the Industrials segment of the market, gaining +16%, with the major banks benefiting from an uptick in bond yields and the amount of loans on deferral continuing to decline sharply. Communication Services had a buoyant month, returning +14%, largely supported by Telstra, as its share price jumped +15% following the company’s announcement that it will split its business into operating and infrastructure divisions as the company’s Board looks to unlock value for shareholders. Telstra also reiterated its full year guidance and upgraded its return on invested capital target for 2022. The Technology sector, which has benefited immensely this year given the mania for “anything tech”, came off the boil, with several overhyped names such as Afterpay, Megaport, NextDC and several ‘buy now pay later’ providers finishing in negative territory. Defensive sectors such as Consumer Staples, Healthcare and Utilities all lagged the market rise as investors rotated into more economically exposed sectors. Particularly hard-hit over the month was Treasury Wine Estates, which fell as the trade dispute between China and Australia escalated with the announcement from China that Australian wine exports would face tariffs of up to 200%.
The Investors Mutual Equity Income Fund enjoyed a strong month, returning +10.8%, which was better than the benchmark’s return of +10.2%. Encouragingly, many of our holdings benefited from the rotation back into quality companies trading on attractive valuations, such as Telstra, Tabcorp, Aurizon, Brambles and Woodside Petroleum. The market rotation over November allowed us to generate good incremental income by selectively writing call options over some of our holdings including Amcor, Ampol, Crown Resorts and Woodside Petroleum as these stocks rallied strongly. Conversely, we targeted attractive entry prices in Sonic Healthcare and Woolworths through selling put options, as these stocks weakened as investors chased more cyclicalsectors.
Continued record low interest rates, government stimulus and the recovery in many parts of the Australian economy, as lockdowns cease and interstate borders open up, has led to a sweet spot for the Australian equity market, with many companies’ share prices rallying strongly over the past month. Having said this, the outlook for 2021 remains relatively uncertain given the many imbalances in the economy as things normalise. We continue to focus on companies that, in our view, have a strong franchise, experienced and capable management, and a resilient business that can continue to generate healthy cashflows over the next few years.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/Latest_Update_IMEIF-1.pdfOctober, 2020
The Investors Mutual Equity Income Fund had a solid month, gaining +0.7%, although this was below the benchmark’s return of +1.9%. Many of our core holdings had a lacklustre month with Telstra, Amcor, Orica, Brambles and Aurizon all under pressure although we remain comfortable with all these holdings as they remain attractively priced. Our lower weighting to the major banks also held back our relative performance, however, we remain comfortable with this positioning given the slowing credit growth and continuing squeeze on bank margins as lower interest rates feed through. The local IT sector continues to be significantly overvalued, in our view, and we continue to find much better value elsewhere.
Volatility continued to provide opportunities over the month as the AGM season progressed, as well as market uncertainty ahead of the US Federal election. To supplement income, the Fund tactically used the market swings to write attractive option premiums around its key investments including Brambles, Coles and National Australia Bank.
We continue to focus on companies that, in our view, have a strong franchise, experienced and capable management and a resilient business that can continue to generate healthy cash flows over the next few years. While the Fund’s performance has lagged the sharemarket in recent times, we remain comfortable with the overall quality of the stocks in the portfolio and the Fund’s positioning going forward.
ticker: IML0005AU
commentary_block: Array
factsheet_url:
https://iml.com.au/files/Latest_Update_IMEIF.pdf
release_schedule: Monthly
fund_features:
Investors Mutual Equity Income offers investors impressively managed Australian equity income underpinned by a robust process. The fund’s dual objectives are to provide a dividend yield (after fees and expenses and before taxes) which exceeds a yield of 2% above that of the S&P/ASX 300 Accumulation Index on a rolling four year basis, whilst maintaining lower levels of volatility relative to the S&P/ASX 300 Accumulation index.
- Invest in a diversified portfolio of quality ASX listed Australian shares, hybrids, bought and sold options and cash.
- An investment horizon of four to five years.
- Considered to be a medium to high risk investment.
- Asset class allocation: Australian equities (50% – 100%), Cash (0% – 50%).
manager_contact_details: Array
asset_class: Domestic Equity
asset_category: Australia Derivative Income
peer_benchmark: Domestic Equity - Derivative Income Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund