Switzer Dividend Growth Fund January 2024 Portfolio Update

Welcome to the January 2024 Investment Update for the Switzer Dividend Growth Fund (SWTZ or the Fund).

Performance Summary

The portfolio delivered a return of 1.33% during the month, outperforming the S&P/ASX 200 Accumulation Index (ASX 200) return of 1.19%.

Over the past 12 months, SWTZ has paid a distribution yield of 3.62% or 5.02% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 31 January 2024 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 increase was driven by the Energy (+5.2%) and Financials (+4.9%) sectors, partially offset by the decline in the Materials sector (-5.7%). By the end of January, the Australian equity market had gained 14% on the October lows, reaching an all-time high at 7,681points.

The US Federal Reserve held interest rates steady this month, signalling a rate cut would be unlikely in March. Post the decision, the 10-year US Treasury yield dropped 10 points to 3.96%, finishing the month at 3.99%. There is evidence in Australia that inflation is declining with CPI falling from a peak of 8.4% per annum in December 2022 to 4.3% per annum in November 2023 and to 3.4% per annum in December 2023.

At a portfolio level, Medibank Private (MPL), BHP Group (BHP) (owned with less weight than benchmark) and National Australia Bank (NAB) were notable contributors. The Materials sector underperformed, taking a 5% fall in iron ore price to US$133/tonne, with BHP absorbing more than half of the losses. Reflecting the recent optimism around softer inflation, interest rate cuts and a benign credit cycle, banks have seen a broad rise in share prices. NAB was the strongest amongst the big four banks, rising 6.2% for January, reflecting the better-than-expected credit cycle and favourable business mix.

Negative contributors to portfolio performance include Pilbara Minerals (PLS) and CSL (owned with less weight than benchmark). The share price of PLS, as a pure lithium producer, felt the fluctuations faced by Australian lithium producers, with disappointing lithium prices and uncertainty in the near-term outlook for lithium demand from global EV sales. The Heath Care sector was a notable positive contributor to the ASX 200 uplift in January, driven by the recovery from an overly negative sentiment surrounding stubborn staffing shortages and elevated costs.

In the immediate term, our focus is on the upcoming February earnings season for ASX listed companies. Consensus earnings per share expectations for the ASX 200 are negative, despite the ASX 200 trading at a slight premium, reflecting hopes of an imminent interest rate easing cycle. This is occurring before any material earnings outlook changes but may be justified if earnings recovery catches up. We remain cautious, observing limited room for further valuation expansion. In particular, we expect more moderate top-line growth with the orderly decline in inflation and margins to remain under pressure from elevated interest expenses and labour costs.

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 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.