Welcome to the December 2021 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 2.63% over the month of December, compared with the S&P/ASX 200 Accumulation Index return of 2.75%.

Over the past 12 months, SWTZ has paid a distribution yield of 3.00%, or 4.23% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 31 December 2021 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 major elements that have supported equity prices in 2021 are expected to fade in 2022. The combination of unrivalled fiscal and monetary stimulus and the benefits of economies re-opening have driven up the price of ‘just about everything’. As we start the new year, it appears that central banks are looking to curtail the liquidity stimulus as inflation accelerates, while policy makers consider an earlier timetable for reducing bond purchases (AKA ‘tapering’) and potentially raising interest rates. While monetary policy (a key support mechanism for asset prices) is set to tighten (albeit modestly), we still expect earnings for the ASX 200 to grow in 2022, though at a slower pace than 2021.

M&A activity in the Healthcare sector was elevated in December with the core portfolio stocks of CSL, Healius and Ramsay Health Care announcing acquisitions. Each of the acquisitions underlines opportunities for the healthcare sector beyond the disruptions of COVID-19 and provides a constructive backdrop for the long-term treatment of chronic health conditions.

• CSL announced plans to acquire Vifor Pharma for an equity value of US$11.7bn. The transaction provides exposure to the renal disease market where the prevalence of chronic kidney disease is expected to growth at ~8% per annum. Vifor’s product portfolio is complementary to CSL’s existing R&D pipeline in cardiovascular disease. The transaction is also expected to be EPS accretive in the first full year of CSL ownership, including US$75m of synergies to be achieved over three years.
• Healius announced the acquisition of Agilex Biolabs for $301m. Agilex Biolabs is an Australian bioanalytical laboratory company that provides exposure to the growing demand for clinical trials, which are increasingly outsourced by pharma companies. The acquisition diversifies Healius’ revenue streams and provides exposure to the global clinical trial sector. The company expects the acquisition to deliver low-single digit EPS accretion in the first full year of ownership.
• Ramsay Health Care announced that it intends to acquire Elysium Healthcare, a UK operator of hospitals and care homes for individuals with mental health conditions, for A$1.4bn. The acquisition provides Ramsay with exposure to the UK Mental Health market, estimated to be worth £15.2bn with the UK government committed to increasing funding for mental health diagnosis. The company expects the acquisition to be mid-single digit EPS accretive in FY23.

Amid the persistence of the COVID-19 virus and at a time when central banks are actively looking to unwind ultra-accommodative policy settings, we expect earnings growth and market valuations to moderate. Nonetheless, in an environment of slower but still positive growth in profits, a focus on dividend yield should become a more prominent consideration for investors. Against this backdrop, the Fund’s emphasis on earnings quality, dividend sustainability and conservatively positioned balance sheets remains imperative.

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.