Portfolio Update - February 2020
It has been a watershed month for financial markets as coronavirus outbreaks have become more widespread. The disruption to global output and the reaction by policy makers have galvanised the attention of investors. As the above graph illustrates market corrections are a frequent phenomenon, while unnerving at the time, present investors the opportunity to purchase high quality companies at more favourable prices. In Australia the ongoing impact of the coronavirus is resulting in further downgrades to FY20 ASX 200 profits, whereby even the modest expectations of 1-2% earnings growth is now looking unrealistically optimistic. With the prospect of an earnings contraction ahead for the ASX 200, earnings quality and balance sheet conservativism play an increasingly important role in portfolio composition. In recent days central banks, including the Federal Reserve and the RBA, have announced emergency rate cuts to cushion the economic impact of the coronavirus. The contraction in China’s economic activity has been unprecedented as authorities measures to contain the coronavirus resulted in its national PMI falling to a record low of 35%. Encouragingly signs of stabilisation of the virus in China are providing the backdrop to resume normalised economic and social activity. There is growing expectation that China’s resumption of industrial production could be back to normal levels in the coming months. Blackmore Capital has deployed a modest level of capital after the market entered correction territory (> than a 10% fall from recent peak). Importantly, we had built up cash levels to c.15% before the recent correction occurred in equity markets, providing the opportunity to not only reduce portfolio volatility, but also provide the ability to invest counter-cyclically when opportunities arise. It is noteworthy that Blackmore Capital’s equity portfolios have exhibited lower volatility and greater downside protection relative to the ASX 200 Index, a pattern that is consistent for each market downturn since the inception of the portfolios six years ago. Blended Australian Equity Portfolio | Australian Equities Income Portfolio The Blended Australian Equity Portfolio finished the month of February down 5.21% compared to the ASX 200 Accumulation Index down 7.69%. Positive contribution for the Blended Australian Equity Portfolio was driven by Cleanaway Waste Management (CWY), Healius Ltd (HLS), and Northern Star (NST). Whereas, BHP Group (BHP), Ramsay Health Care (RHC), and News Corporation (NWS) weighed on attribution. The Australian Income Portfolio finished the month of February down 5.53% compared to the ASX 200 Accumulation Index down 7.69%. Positive contribution for the Australian Income Portfolio was driven by Cleanaway Waste Management (CWY), Healius Ltd (HLS), and Northern Star (NST). Whereas, BHP Group (BHP), and Macquarie Group (MQG), and Ramsay Health Care (RHC) weighed on attribution.