Please click here to download a copy of CIE’s latest NTA statement and portfolio update.

INVESTMENT OBJECTIVE

CIE is an income-focused listed investment company, with a portfolio of companies largely outside of the ASX top-20. CIE’s objective is to pay quarterly dividends that provide investors with an attractive and sustainable income stream that is franked to the maximum possible extent. We select companies that, in aggregate, have a history of paying consistent dividends. The portfolio is characterised by a strong and diverse portfolio of companies that exhibit good cash flows and business models.

Over the past 12 months, CIE has paid a dividend yield of 5.61%, or 7.30% including franking credits. Dividend yield is calculated as the dividends attributable to the 12-months to 30 September 2019 relative to the closing share price at the beginning of the period.

PERFORMANCE SUMMARY

CIE’s investment portfolio performed in line with the broader market over the month of September returning 2.04%. The NTA before tax of the portfolio was $0.96 per share.
The market, as measured by the S&P/ASX All Ordinaries Accumulation Index, returned 2.13% for the month. After removing the top 20 companies by market cap to better reflect CIE’s investment universe, the index returned 1.88%.

PORTFOLIO COMMENTARY

CIE’s cash position at the end of the month was 4.3%, compared 5.0% target cash weight. Activity in the fund was lower in September compared with August, a month in which the majority of companies announced their annual results. The fund took profits in several companies during September including IPH, ASX, McMillan Shakespeare, Charter Hall Group and Brickworks. CIE sold out of AGL Energy, carsales.com and Commonwealth Bank of Australia with solid gains banked on each of these investments.

Commonwealth Bank share price

Source: Bloomberg

Several current positions were increased during the month including Spark Infrastructure Group, AusNet Services, Viva Energy REIT, Origin Energy, Orora and Viva Energy Group. In our view, these companies are either defensive and/or offer attractive value.

Modest new investments were made in a handful of resource companies during the month including Western Areas and Iluka Resources. Although these companies will pay some dividends, they are primarily in the portfolio to provide capital upside.

MARKET COMMENTARY

Global markets were stronger over the month, recovering some of last month’s falls. The Dow Jones was 2.0% higher, outpacing a 0.50% rise in the NASDAQ. Japan’s TOPIX rose 5.0% whilst China’s CSI 300 Index fell 1.0%.

Markets during September were driven primarily by US and China trade frictions, which appear to be no closer to any kind of resolution. An attack on Saudi oil installations sent the oil price skyrocketing to US$63bbl. Political risk continues to rise for investors. Bond markets sold off after a strong August. The yield on the Australian 10-year benchmark bond closed 13 basis points higher (lower in capital value) month on month at 1.02% whilst its US counterpart finished at 1.66%, up 16 basis points. The sell-off in bonds appeared to drive a change in market leadership during the month with “value” outperforming “growth”. This is the first time that this switch has occurred for a number of years and, given its investment objective, was beneficial to CIE’s portfolio performance.

Sectors were mixed over the month. Within the S&P/ASX 200 Index Energy (+4.7%), Financials (+4.1%), Materials (+3.1%) and Consumer Discretionary (+3.0%) were the best performers whilst Communication Services (-2.9%), Health Care (-2.5%) and REITs (-2.3%) were the worst. Overall, the mix was positive for CIE.

The best performing companies within the portfolio were Western Areas (+25.8%), GUD Holdings (+11.7%), Caltex Australia (+11.3%), Bapcor (+10.3%) and Brickworks (+10.1%). Z Energy (-12.8%) was the only company in the portfolio that fell more the 10% after an earnings downgrade.

PORTFOLIO OUTLOOK

Economic activity remains subdued with growth indicators continuing to slow. Central banks around the world remain ready to support economic activity with liquidity and lower interest rates. The sell-off in bonds stabilised and reversed over the course of the month indicating that growth remains low and inflation subdued. A combination of slow growth and low interest rates remains a positive backdrop for equities.

We continue to build up the secure earnings streams in those defensive companies that we believe are of increasing value in a world of low rates. The ongoing volatility in share prices will present opportunities for us to enhance returns for CIE shareholders. Meanwhile, the current economic backdrop will continue to support equities in general. Interest rates stabilising at low levels should remain a positive for income focussed strategies such as CIE