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20170421 – Weekly Portfolio Activity Summary

In a shortened trading week, the local share market looks like it will finish positively today and close flat for the week after trading lower in the first days after the Easter break. The ASX200 index tested 5,800 on a number of occasions, though found support each time to close above this threshold. It was a different story however in the UK where Prime Minister May’s decision to hold an early election triggered a sell-off in the FTSE100 index. A fall of 2.5% on the election news was enough to wipe out the year to date gains for the benchmark index. In terms of economic data, the Chinese GDP figure released on Monday provided a positive surprise when it was announced that the economy had grown at an annualised rate of 6.9%, slightly ahead of consensus expectations.

Over the weekend the world’s attention will be on France where the first round of the presidential elections will be held on Sunday. A composite of the polls suggests a very close race with Emmanuel Macron still maintaining a slight lead from Marine Le Pen. However, a late surge from Jean-Luc Melenchon has put him in striking distance along with Francois Fillon who remains a realistic chance of finishing in the top two, and then progressing to the second round vote in early May.

ASSET ALLOCATION & INVESTMENT COMMITTEE

Heightened geopolitical tensions were discussed when the committee met this week, though it was noted that thus far the reaction of financial markets has been relatively muted. A modest spike in volatility has somewhat abated over the last week or so, and remains at an historically low level. We reiterate here the statement from the monthly commentary, which is that turbulent times remind us of the importance of a sound investment process and a long-term focus. The decision of the committee was to maintain the prevailing Dynamic Asset Allocation settings across the range of Investment Programs.

Last month we announced the intention to trim the exposure in Australian Equities, effectively bringing the asset class back to the explicit overweight target. Strong performance meant that the actual exposure had increased by a few percent, as the weight is allowed to float higher. The portfolio management team has completed most of this relatively modest level of activity, though some portfolios will continue to see targeted selling which accounts for individual portfolio circumstances. Weakness in the Australian dollar has been supportive of the performance in International Equities where the underlying ETFS are unhedged to moves in our currency. The committee continues to expect that the broadly diversified Emerging Markets ETF will be replaced in coming months, though positive momentum in this investment means we are happy to be patient about completing this change.

Interest rates have moderated over the course of the month, though the floating rate Income Securities have held up well in this environment and remain an integral part of your portfolio. As we have previously announced there is likely to a be compositional adjustment in this asset class in the near future as new ETFs that hold defensive investments are launched. It is important to note that the lower targets for major bank issued preference shares do not necessarily mean that selling activity will be completed. The flexibility of the Individually Managed Account structure means we are able to treat new money differently to old. Older portfolios that bought when prices were more attractive are likely to maintain their current exposures, but newer portfolios being implemented now will only buy up to the reduced targets. We will keep you updated as the new investment options become available and as the committee finalises any adjustment to this asset class.

PORTFOLIO ACTIVITY

  • This week we have been focusing on accounts in their initial stages of implementation as well as for older accounts where cash has built up.
  • Within Australian Equities we made purchases in the ASX 50 ETF (SFY) as well as the ASX200 Financials (excl. Property) ETF (OZF).
  • Internationally we made purchases in Europe Ex-UK ETF (VERX) and the Japanese Topix ETF (1475).
  • As always we continue to execute trades for those accounts that have specific instructions as provided to us by your adviser.

 

 

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