Portfolio Update - January 2019
Global equity markets mounted a strong recovery in January supported by the US Federal Reserve moderating its view on further interest rate rises and China highlighting its willingness to consider further stimulatory measures. The sharp pull-back in equity prices over the December quarter provided investors the opportunity to purchase companies at more attractive valuations, with the ASX 200 trading on a forward price earnings ratio of c.14 times, in line with long-term averages.
The Blended Australian Equities Portfolio finished the month of January up 3.62% compared to the ASX Accumulation Index up 3.87%. Positive attribution for the Blended Australian Equities Portfolio was driven by Nearmap (NEA), Cleanaway Waste Management (CWY) and Brambles (BXB). Nearmap’s strong performance was underpinned by encouraging revenue trends in its nascent US business and reaffirming its guidance for FY19 cashflow breakeven. Whereas, Resmed, Starpharma and Steadfast (SDF) weighed negatively on the portfolio’s attribution. Resmed’s latest quarterly update highlighted higher funding costs and slowing sales momentum in its international business, the net impact was a sharp retracement in its price earnings multiple.
The Australian Income Portfolio finished the month of January up 3.58% compared to the ASX Accumulation Index up 3.87%. Positive attribution for the portfolio was driven by Cleanaway Waste Management (CWY), Brambles (BXB), and Caltex (CTX). Whereas, Steadfast (SDF), Ramsay Health Care (RHC) and Event Hospitality and Entertainment (EVT) weighed negatively on the portfolio’s attribution.
A key focus for the upcoming 1H19 earnings results season will be the potential for companies to return excess franking credits to shareholders. With a Federal Election expected by May 2019 and with the ALP proposing to close the concession of giving cash refunds for dividend imputation credits, there is greater attention on companies to return excess franking credits back to shareholders before this concession is removed. The franking credit balance held by ASX 200 companies is in the vicinity of $45bn. Companies held in the Blackmore Capital portfolios that have large franking credit balances include: Alumina, BHP, Caltex, Washington H. Soul Pattinson and Woolworths.