• Marcus Bogdan

Portfolio Update | Market Corrections | Corona Virus

• Market corrections are never pleasant experiences. Yet, this is the time when investment temperament becomes critically important. Undoubtedly, it is the investment heritage of surviving and learning from investment cycles and ‘left field’ events that provide the foundation for long term wealth creation.

• A focus on the medium/long term fundamentals remains imperative. Ultimately, market corrections provide opportunities to buy great companies at more attractive valuations and higher dividend yields.

• Mindful of a range of risks emanating from high valuations, ongoing geo-political risks and now the coronavirus Blackmore Capital had already taken a series of steps to bolster the resilience of its portfolios.

• It is worthy to note that Blackmore Capital had already reduced our equity exposure to the markets in recent weeks as valuations were becoming unrealistically high given the backdrop of weakening profit growth. We have increased our cash levels to approximately 15% in the Blended and Income portfolios.

• Moreover, Blackmore Capital had over the course of the last year increased its exposure to defensives in healthcare and consumer staples and higher dividend yield companies.

• This is aptly illustrated by our overall level of exposure to companies that operate in essential industries (c.25% of the portfolio), namely:

o Coles (consumer staples)

o CSL (healthcare)

o Cleanaway (waste management)

o Healius (healthcare)

o Northern Star (gold)

o Ramsay (healthcare)

o Woolworths (consumer staples)

• The portfolios hold approximately 15% cash.

• The portfolios hold two companies that are under conditional take-over Caltex and Healius c.10% of the portfolio.

• The combined total portfolio exposure to defensives, stocks under corporate take-over, and cash is close to 50%.

• The portfolios provide investors with a dividend yield of >4% compared to a cash rate of <1%.

• Our focus on earnings quality, balance sheet strength, and a margin of safety on valuation metrics has historically underpinned the portfolios greater resilience in periods of market volatility.

• In each period where the ASX 200 has fallen by > than 5% the Blackmore Portfolios have exhibited less volatility, lower drawdown and a faster recovery period.

• The ASX 200 is set to be down 10% from its recent highs. In less than a week the coronavirus has wiped-off more than a PE point from global market valuations. The ASX 200 now trades on PE ratio of 17.2x compared to its high of 18.3x last week.

• Nonetheless, we do not believe we have “reached the buy-the-dip opportunity yet”.

• It will take time for markets to regain their confidence.

• However, Blackmore Capital portfolios are defensively positioned, and we will use our cash position to invest when greater value emerges.