Switzer Dividend Growth Fund January 2022 Portfolio Update

Welcome to the January 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 -5.30% over the month of January, compared with the S&P/ASX 200 Accumulation Index return of -6.35%.

Over the past 12 months, SWTZ has paid a distribution yield of 3.11%, or 4.39% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 31 January 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

From January 2022, distributions to investors from SWTZ will be paid monthly instead of quarterly. This change to monthly payments will make the Fund more contemporary for investors seeking regular income and provides a basis for increased investor communication.

The ASX 200 decline of more than 6% in January was its worst start to the year since 2008. Since the nadir of equity prices in March 2020, risk assets have been driven higher by an abundance of liquidity and stimulus. Global economies have flourished and corporate earnings have rebounded, supporting record equity prices. Yet the ‘whatever it takes’ policy response, combined with the pandemic-induced dislocation of global supply chains, has ushered in an era of structural imbalances prompting inflation to rise to its highest level in decades. The fear that inflation may not be under control has led to a sharp pivot by central banks acknowledging they are now ‘behind the curve’. The prospect that interest rates and bond yields will rise and there will be less of a stimulus impulse saw global equity markets decline sharply in January. The sell-off in equity markets highlighted the vulnerability of highly valued companies (i.e. growth stocks) and also sectors, such as Healthcare, where the provision of services has been disrupted by the COVID-19 Omicron variant.

At a portfolio level, value was a clear outperformer in January. The outperformance was driven by gains in Energy and Material stocks, with BHP and Santos being the standout contributors. Declines were most evident in Consumer Staples and Healthcare, with CSL/Healius and Wesfarmers weighing on performance. We contend that higher bond yields and the wide valuation dispersion that still exists between growth and value will continue to weigh on the most expensive stocks. However, we remain optimistic that the Healthcare sector should show signs of recovery as the impact of the Omicron variant fades and the backlog of treating patients resumes. Moreover, the recent de-rating in the Consumer Staples stocks impacted by supply chain disruptions is now appearing to ease. Higher food inflation should also support both earnings and the price-to-earnings ratios of supermarkets.

For 2022, equity markets face the dual headwind of tightening financial conditions and slowing earnings momentum. The sell-off in global equity markets in January reflected these concerns. Nonetheless, global economies continue to enjoy strong growth. Our portfolios are focused on quality companies with strong balance sheets that remain well placed to deliver dependable dividends to our investors.

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.

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 Blackmore Capital Pty Limited 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 Blackmore Capital Pty Limited, 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.