• Marcus Bogdan

Portfolio Update - August 2020

It is hard to imagine a greater contrast than equity markets have experienced in 2020. The ASX 200 peaked at a record high on the 20th February then collapsed more than 35 per cent within a month, recording one of the fastest bear markets in history. Remarkably, this was followed by one of the fastest recoveries in history to rally 1/3 from its trough. Today, we remain approximately 15% below the 20th February peak. Ironically, closely matching the level of earnings per share decline (c.15%-20%) recorded in the recent FY20 earnings reporting season.


Indeed, the FY20 earnings reporting season was better than initially feared. In aggregate there were more upgrades than downgrades in this reporting season.


Source: MST Strategy


There was a level of resilience across numerous sectors, most notably: industrials (Amcor, Brambles, Cleanaway), consumer staples (Coles, Woolworths), retailers with online offerings (Wesfarmers), resources (BHP) and digital media & property (NWS, REA). The biggest downgrades to earnings were in the financial sector (banks, insurers) and businesses impacted by social distancing (air travel, hospitality & shopping malls). The healthcare sector was also not immune as elective surgery was deferred and patients moved to virtual health.


An economic gear shift is being played out through the combination of record low interest rates and expansionary fiscal spending promoting a conscious effort to resuscitate inflation. The US Federal Reserve has marked a significant shift in the framework that has shaped central bank thinking for decades, that of inflation targeting. In a clear break with tradition the Fed will tolerate higher inflation to boost growth, with the aim to average out inflation at 2 per cent over the longer term. 


The shutting down of economies has required unrivalled government spending to inoculate the economy. The risk is that fiscal support may not fade as much as expected because the population has become accustomed to receiving money from the public purse, hence governments may feel that their political tenure can only be guaranteed if they maintain spending.


There may be clear consequences for potential stock rotation within the market. The allure of growth stocks reaching new highs suggests valuations have now run well ahead of earnings expectations. Instead, our investment gaze is moving toward companies and industries that will be beneficiaries of a normalization of economic activity and the potential reawakening of inflation. Based on this premise we are interested in health service companies and “hard asset” plays within the industrial, resources & energy sectors.


Blended Australian Equity Portfolio  |  Australian Equities Income Portfolio


The Blended Australian Equity portfolio finished the month of August up 3.19% compared to the ASX 200 Accumulation Index up 2.83%. Positive contribution for the portfolio was driven by Cleanaway Waste Management (CWY), News Corporation (NWS) and Ramsay Health Care (RHC). Whereas Northern Star (NST), Spark NZ (SPK) and Ampol (ALD) weighed on attribution.


The Australian Income Portfolio finished the month of August up 2.17% compared to the ASX 200 Accumulation Index up 2.83%. Positive contribution for the portfolio was driven by Cleanaway Waste Management (CWY), Chorus (CNU), and Ramsay Health Care (RHC). Whereas Northern Star (NST), Telstra (TLS) and Ampol (ALD) weighed on attribution.

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