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  • Writer's pictureMarcus Bogdan

Investor Update - August 2024

New Heights Amidst Sector Divergence


The ASX 200 reached new record highs in August, marking its fourth consecutive monthly gain with a 0.4% increase. This resilience is particularly noteworthy given the market's ability to recover from a sharp 6% decline in the month's first week.


Sector Spotlight:


  • Growth Sectors Lead: Technology (+7.2%), Industrials (+3.5%), and Financials (+1.9%) spearheaded the market's ascent.


  • Resources Under Pressure: Energy (-6.2%) and Materials (-1.7%) faced headwinds, highlighting the stark performance gap between growth and value sectors.


Economic Landscape: Challenges on the Horizon


The Australian economy's growth rate slowed to 0.2% in the June quarter, resulting in an annualized rate of 1.0% - the weakest in 30 years outside of the pandemic period. This slowdown raises important considerations for investors:


  • Private sector activity showed significant weakness.

  • Public spending emerged as the primary contributor to GDP growth.

  • The FY24 reporting period revealed that higher interest rates are finally impacting household consumption and private sector investment.


Portfolio Moves: Adapting to Market Signals


Our active management approach led to several strategic portfolio adjustments in response to the August earnings season:


  1. Increased Position: Goodman Group (GMG)

    • Impressive 14% EPS growth, exceeding guidance

    • Strategic expansion into the high-potential data center sector


  2. Opportunistic Buy: Origin Energy (ORG)

    • Well-positioned to benefit from electrification and decarbonization trends

    • Strategic investments in batteries and Virtual Power Plants


  3. Strategic Exit: Spark NZ (SPK)

    • Disappointing FY24 earnings and deteriorating earnings quality

    • Weak FY25 guidance and unsustainable dividend payout ratio


Looking Ahead: Navigating Uncertainty with Prudence


As we move forward, we're mindful of several key factors:


  • Corporate Australia maintains a cautious outlook amid economic slowdown signs.

  • Inflationary cost pressures persist for companies.

  • ASX 200 earnings growth for FY25 is forecast at a modest 3%.

  • The broader market trades at a P/E of ~17.5x, representing a 20% premium to its long-term average.


Our Strategy:


In this environment, we're doubling down on our core philosophy: focusing on industry leaders with a proven track record of delivering resilient earnings and dividends throughout economic cycles.


Fund Performance Highlights


Income Portfolio:


  • Top Performers: Brambles (BXB), Northern Star (NST), Premier Investments (PMV)

  • Underperformers: Spark NZ (SPK), Santos (STO), Origin (ORG)


Concentrated Portfolio:


  • Top Performers: ResMed (RMD), Premier Investments (PMV), Macquarie Group (MQG)

  • Underperformers: Macquarie Technology (MAQ), Santos (STO), Spark NZ (SPK)

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