Portfolio Update - May 2020
There has been a sharp increase in risk appetite since the trough of the ASX 200 on March 23. Equity markets have been buoyed by overwhelming monetary and fiscal support. The re-opening of many economies without a significant rise in new COVID-19 infections has also bolstered optimism. Improved sentiment has underpinned a rotation from defensives to cyclicals and from growth to value stocks.
Yet, while the effects of COVID-19 are abating we do not envisage that corporate profits will fully recover until the financial year of 2022. It remains too early to tell whether COVID-19 has triggered a structural change in risk aversion for businesses and households, leading to more savings and less capital investment. We expect that further market upside will be dependent on a recovery in household and business spending.
The current forward 12-month P/E for the ASX 200 of c.18 times reflects that the economy is on a steady path of normalization. Nevertheless, there remains the potential risk of second-round effects that may weigh on the recovery. As the level of uncertainty remains large, our investment portfolios are weighted toward defensive growth companies supported by strong balance sheets.
The Blended Australian Equity Portfolio finished the month of May up 3.84% compared to the ASX 200 Accumulation Index up 4.36%. Positive contribution for the Blended Australian Equity Portfolio was driven by BHP Group (BHP), Qube Holdings (QUB) and Ramsay Health Care (RHC). Whereas, Healius (HLS), Woolworths (WOW), and Spark New Zealand (SPK) weighed on attribution.
The Australian Income Portfolio finished the month of May up 4.58% compared to the ASX 200 Accumulation Index up 4.36%. Positive contribution for the Australian Income Portfolio was driven by BHP Group (BHP), Ramsay Health Care (RHC) and Qube Holdings (QUB). Whereas, Healius (HLS), Woolworths (WOW), and Spark New Zealand (SPK) weighed on attribution.