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  • Writer's pictureMarcus Bogdan

Portfolio update & Recent Changes

Updated: Jul 11

Blackmore Capital Blended Australian Equites Portfolio


A higher-for-longer interest rate environment in Australia underscores the importance of earnings quality and balance sheet strength. Greater risk vigilance is required as interest rates and bond yields remain elevated as inflationary cost pressures persist. While there has been some moderation of input costs over the last year, renewed supply chain bottlenecks due to trade route disruptions and labour cost/availability are proving to be unwelcome headwinds for inflation.

 

Moreover, the RBA’s rate hiking cycle is now clearly slowing demand growth in the economy, with the latest annual growth in GDP the slowest rate in more than three decades outside the pandemic.

 

With this in mind, we have increased the portfolio’s exposure to large industrial companies, namely James Hardie, Origin Energy, and Woolworths. At the same time, we have reduced our exposure to the smaller capitalized companies Hansen Technologies, Integral Diagnostics, and Iluka Resources.


IIuka Resources (ILU) is a leading producer of Zircon and Titanium dioxide used in a wide range of industrial applications. Zircon is primarily used in the ceramics industry (tiles and sanitary ware) for the housing industry. The key market for Zircon is China (constituted 36% of ILU’s zircon sales in 2023), whose housing market remains under significant duress.

 

Tangible signs that the Chinese property market has troughed have failed to materialise. To date, China policymakers have been unable to stabilise the property market, with continued high housing inventory combined with weak consumer sentiment weighing on activity. The latest round of property policy easing measures has not stimulated activity, in fact, house prices continue to decline, and property activity has slid further.

 

With a backdrop of continued poor housing fundamentals (excess supply, weak consumer sentiment), we do not expect to see a rebound in the demand for zircon/ceramic products for the foreseeable future, we have divested the portfolio’s holding in ILU.

 

More broadly, in an environment where either growth has failed to materialize (China’s housing market) or where we are seeing evidence that demand growth is slowing in Developed economics, we are adjusting the portfolio to be weighted to larger capitalised companies and a higher cash weighting.

 

The broadness of uncertainties has also prompted us to increase the cash weighting for the portfolios, providing an important reserve for future opportunities.


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