Welcome to the June 2023 Investment Update for the Switzer Dividend Growth Fund (SWTZ or the Fund).

Performance Summary

The portfolio delivered a return of 1.08% in June 2023 compared with the S&P/ASX 200 Accumulation Index benchmark return of 1.76%.

Over the past 12 months, SWTZ has paid a distribution yield of 6.32% or 8.40% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 30 June 2023 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

During the month, Materials (+4.6%) was the best performing sector, while Health Care (-6.4%) underperformed following the release of CSL’s FY24 earnings guidance, which was below market expectations. Overall, earnings expectations for the market continue to be revised lower ahead of the upcoming full year 2023 reporting period in August. We expect that company earnings will progressively be impacted by higher interest rates and ongoing cost pressures from wage and energy inflation.

In June, there have been several key updates from companies in the portfolio, with Cleanaway Waste Management, CSL and Ramsay Health Care providing earnings and/or operational announcements.

• Cleanaway Waste Management (CWY) – Reaffirmed FY23 earnings guidance of $300m EBIT (earnings before interest and taxes) and EBIT margin of 10.3% at its June Investor Day. CWY will provide 3-year EBIT CAGR (compound annual growth rate) targets with its FY23 result announcement in August.
• CSL – Reaffirmed FY23 earnings to be towards the top end of guidance. However, FY24 guidance was below market expectations due to a more gradual recovery in gross margins and headwinds from foreign exchange and net interest costs.
• Ramsay Health Care (RHC) – Announced it was exploring the possibility of a sale of its 50% holding in Ramsay Sime Darby (RSD) after “receipt of significant inbound interest”. RHC also secured a new funding facility of A$1.5bn. The potential sale of RSD and refinancing would help to address concerns about RHC’s balance sheet.

At a portfolio level, BHP Group, Macquarie Group, and Woolworths Group were notable strong performing stocks. Whereas CSL, Northern Star Resources and Spark NZ weighed negatively on performance.

Equity markets in 2023 have been remarkedly resilient, despite having to navigate the impact of higher interest rates (rising cost of capital), continued US/China/Russia geopolitical tensions and consumer cost of living pressures, without a sustained fall in asset prices. The ASX 200 valuation metrics have been relatively stable based on a forward P/E of 14.5 times and a dividend yield of ~4.3%, both of which are trading around their 30-year averages. The upcoming FY23 reporting period should provide an important indication of the health of company earnings and the prospects for the remainder of the year. The portfolio is well positioned and continues to hold industry leaders across the Health Care, Industrial and Resource sectors.

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.