Welcome to the April 2022 Investment Update for the Switzer Dividend Growth Fund (SWTZ or the Fund). Click here to download the report.

Performance Summary

The portfolio delivered a return of 1.70% over the month of April, compared with the S&P/ASX 200 Accumulation Index return of -0.85%.

Over the past 12 months, SWTZ has paid a distribution yield of 3.02%, or 4.27% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 30 April 2022 relative to the price at the beginning of the period.

Given its focus on income and capital preservation, over the long term we expect SWTZ to marginally underperform in rising markets and marginally outperform in falling markets.

Portfolio Commentary

The ASX 200 declined 0.9% in April and steep falls beset US equities where the S&P 500 fell 8.7% and the Nasdaq fell 13.2%. The realisation that financial conditions will need to be aggressively tightened to combat the fastest pace of inflation in several decades prompted a sharp decline in equity prices. The declines were led by falls in the Materials, Technology and Consumer Discretionary sectors. BHP was the largest single-stock detractor. Higher bond yields continued to weigh on Technology valuations, whereas Health Care, Industrials and Consumer Staples were the strongest contributors benefiting from a rotation into defensive companies.

Health Care was supported by a strong contribution from Ramsay Health Care (RHC) which received an $88 per share cash bid by a consortium led by the private equity company, KKR. We view the bid for RHC as opportunistic, given earnings have been depressed throughout the pandemic and are now well placed to recover with an unprecedented post-pandemic backlog of patients. RHC was the largest positive contributor to the portfolio in April.

Clearly the prospect of tighter central bank policy at time of weaker global growth has presented a meaningful headwind for equity valuations. The ASX 200 now trades on a 12-month forward PE of ~15 times, its lowest multiple since the beginning of the pandemic in March 2020, and well below its recent peak of ~18 times.

The 12-month forward ASX 200 dividend yield is ~4.1%, the equal highest in the developed world. Australia’s dividend yield has been supported by the resources sector, namely BHP, benefiting from high commodity prices and strict capital discipline. Overall, dividends have been well supported by continued solid earnings growth by ASX 200 companies.

Nevertheless, earnings momentum is expected to moderate as financial conditions tighten and companies continue to endure supply chain disruptions and cost pressures. The higher-than-expected March quarter inflation outcome prompted the RBA at its May Board meeting to lift the cash rate target (by +25 basis points) for the first time in a decade.

The portfolio remains overweight in Consumer Staples, defensive Industrials and Health Care. These sectors should deliver more resilient earnings against a backdrop of more challenging economic conditions.

Investment Objective

The Switzer Dividend Growth Fund is an income-focused exchange-traded managed fund with a mix of yield and quality companies. The objective of the Fund is to generate an above-market yield while maximising franking where possible and deliver capital growth over the long term. We select companies that, in aggregate, generate sustainable dividend income. The Fund is characterised by a strong and diverse portfolio of companies that exhibit good cash flows and strong business models.