Switzer Dividend Growth Fund August 2022 Portfolio Update

Welcome to the August 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 1.40% in August 2022 compared with the S&P/ASX 200 Accumulation Index benchmark return of 1.18%.

Over the past 12 months, SWTZ has paid a distribution yield of 5.75%, or 7.65% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 31 August 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 rise in Australian stocks was driven by Energy (+7.8%) despite the oil price falling >10% over the month. For the portfolio, gains were led by Santos and Woodside, with both businesses reporting strong underlying earnings and cash flow generation throughout the first half of 2022. The portfolio was also boosted by Spark NZ which delivered a solid FY2022 result and raised its guidance for FY2023 EBITDA and dividends. Spark also announced its intention to return up to NZ$350m to shareholders via an on-market buyback following the sell down of its mobile towers business.

Overall, the ASX 200 delivered earnings growth broadly in-line with analyst expectations. While June half results continued to highlight a resilient Australian economy, earnings will face the headwinds of higher inflation and rising interest rates in FY2023.

After an exceptionally strong environment for earnings in FY2021 & FY2022, there are three major headwinds that could materially weigh on global economies and equity markets for the remainder of the year:

First, China’s zero-Covid policy and property deleveraging has reduced industrial activity and has materially impacted metals demand. A lack of new property starts and a slowdown in industrial activity have resulted in lower steel and base metals demand. China continues to be a critical economy for the demand of both energy and metals.

Second, the European energy crisis is set to worsen as Russia has indefinitely suspended natural gas flows through the Nord Stream 1 pipeline. The situation for Europe is dire, with unprecedented rises in power and gas prices magnifying problems for consumer and industrial activity.

And third, the key takeaway from last week’s Jackson Hole speech is that the US Federal Reserve remains committed to bringing down inflation requiring a more protracted interest rate hiking cycle. US Federal Reserve chair Jerome Powell commented that “restoring price stability will require maintaining a restrictive policy stance for some time.”

We are clearly cautious given the highly volatile economic environment through which companies need to navigate. Yet, Australian companies have done remarkably well given the immense disruptions they have faced since the start of the pandemic. Encouragingly, both corporate and household balance sheets remain sound, supported by an historically strong labour market. Nevertheless, heightened prudence is warranted with an emphasis on the quality of earnings and balance sheets able to withstand the uncertainty.

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.

DISCLAIMER: AGP Investment Management Limited (AGP IM) (ABN 26 123 611 978, AFSL 312247) is a wholly owned subsidiary of Associate Global Partners Limited (AGP) (ABN 56 080 277 998), a financial institution listed on the ASX (APL). AGP IM is the Responsible Entity and Vertium Asset Management Pty Ltd is the investment manager of Switzer Dividend Growth Fund (Quoted Managed Fund) (ARSN 614 066 849) (the Fund).

This material has been prepared for general information only. It does not contain investment recommendations nor provide investment advice. It does not take into account the objectives, financial situation or needs of any particular individual. Investors must, before acting on this material, consider the appropriateness of the material.

Any references to ‘We’, ‘Our’, ‘Us’, or the ‘Team’ used in the context of the portfolio commentary, is in reference to Vertium Asset Management Pty Ltd, as investment manager for the Fund.

Neither AGP IM, AGP, their related bodies corporate, entities, directors or officers guarantees the performance of, or the timing or amount of repayment of capital or income invested in the Fund or that the Fund will achieve its investment objectives. Past performance is not indicative of future performance.

Any economic or market forecasts are not guaranteed. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided that the positions will remain within the portfolio of the Fund.

Investors should seek professional investment, financial or other advice to assist the investor determine the individual tolerance to risk and needs to attain a particular return on investment. In no way should the investor rely on information contained in this material.

Investors should read the Fund’s Product Disclosure Statement (PDS) and consider any relevant offer document in full before making a decision to invest in the Fund. The Fund’s Target Market Determination and other relevant information can be obtained by visiting www.associateglobal.com.