Portfolio Update - August 2018
Equity markets continue to be fortified against the rising tide of economic & political dysfunction that besets the Australian and international landscape. The continuance of a robust US economy coupled with an Australian 2018 earnings reporting season that delivered shareholders positive dividend surprises provided a suitable backdrop for limiting anxiety. Investors in the Blackmore Capital portfolios were beneficiaries of special dividends from Adelaide Brighton, IAG, QUB, and Woolworths. More broadly, the FY18 reporting season can be characterised by:
1. Capital management initiatives through share buybacks and special dividends;
2. Accelerating cost pressures through higher labour, transport and energy prices. Specifically, Australian companies (Boral & Brambles) with operations in the US have collectively warned of the challenges of managing higher costs in their supply chains.
3. Higher capital expenditure guidance, most particularly for resource sector.
4. Greater regulatory scrutiny in the banking and energy sectors. Rising compliance costs will continue to be headwind for the financial services sector.
The Blended Australian Equities Portfolio finished the month of August up 1.89% compared to the ASX 200 Accumulation Index up 1.42%. Positive attribution for the Blended Australian Equities Portfolio was driven by Brambles (BXB), Washington H. Soul Pattinson (SOL), and Resmed (RMD). Whereas, Caltex (CTX), News Corporation (NWS), and Adelaide Brighton (ABC) weighed negatively on the portfolio’s attribution.
The Australian Income Portfolio finished the month of August up 1.83% compared to the ASX 200 Accumulation Index up 1.42%. Positive attribution for the Australian Income Portfolio was driven by Brambles (BXB), Washington H. Soul Pattinson (SOL), and Event Hospitality and Entertainment (EVT). Whereas, Caltex (CTX), Adelaide Brighton (ABC), and Woolworths (WOW) weighed negatively on the portfolio’s attribution.
The telecommunication sector was the best performer in August bolstered by a 50% uplift in TPG Telecom (TPM) share price following the announcement of its intended merger with Vodafone Hutchinson to create a full-service telecommunications provider. Both our investment portfolios enjoyed the corollary benefit of TPM’s share price rise through their holding in Washington H. Soul Pattinson, a 25% shareholder in TPM.
We are mindful that the proclivity of rising equity markets may be vulnerable to the chilling effects of over stretched company valuations and the growing persistence of geo-political and economic instability, particularly in emerging markets. As such, we remain firmly focused on holding companies with earnings and balance sheet resilience.
See the 'Portfolios' section of the website to download monthly summaries for each portfolio.