Welcome to the July 2020 Investment Update for the Switzer Dividend Growth Fund (SWTZ). Click here to download the report.
Investment Objective
The Switzer Dividend Growth Fund (ASX:SWTZ) 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 to 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.
Performance Summary
Over the past 12 months, SWTZ has paid a distribution yield of 3.59%, or 4.89% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 31 July 2020 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. The portfolio was 0.09% higher over the month of July, marginally underperforming the S&P/ASX 200 Accumulation Index which returned 0.50%.
Portfolio Commentary
As Australia moves towards the August reporting season, uncertainty over the extent of dividend reductions remains elevated. The difficulty Victoria is having with containing COVID-19 is likely to delay a recovery and will lead company boards to be more conservative with any dividend payouts.
Insurance Australia Group (IAG) eliminated its final dividend – and it is unlikely to be the last company to do so. The Australian Prudential Regulation Authority updated its guidance on bank dividends indicating that up to 50% of 2020 earnings can be paid out as dividends. There remains some uncertainty regarding how the banks will interpret and react to the updated policy. We expect the August reporting season to be the low point in overall dividend payouts for the COVID-19-impacted period.
The S&P/ASX 200 Index sector performance saw Materials (5.8%), Information Technology (4.6%), Consumer Staples (3.5%) and Communication Services (3.4%) do best. The laggards were Energy (-6.6%), Health Care (-3.9%) and Industrials (-3.7%). Sectoral dispersion was broadly neutral for the Fund in July.
Activity in the SWTZ portfolio was low as we moved into reporting season. Positions were increased in Aurizon Holdings and Telstra Corporation as we hope to see attractive dividends announced in August from these two companies. These purchases were funded by profit taking in Magellan Financial Group and Wesfarmers. Positions in Westpac Banking Corporation, National Australia Bank and Stockland Corporation were also modestly reduced.
Although there was little movement in the