Welcome to the March 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 5.45% over the month of March, compared with the S&P/ASX 200 Accumulation Index return of 6.89%.

Over the past 12 months, SWTZ has paid a distribution yield of 3.74%, or 5.29% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 31 March 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

Australian equities have outperformed the Rest of World for the second month in a row, driven by strong gains in Resources and Banks. The ASX 200 rose 6.9% in March, with Australia benefiting from its high commodity exposure and an improved outlook for bank margins.

On face value it seems counter-intuitive that equity prices have rebounded so strongly given an increasingly challenging backdrop of the Ukraine war, rising inflation and central banks tightening monetary policy. Nevertheless, the buoyancy in equities may be explained by several factors.

First, despite the prospect of central banks raising interest rates, rates remain negative in real terms as inflation remains stubbornly high. Equities can provide investors some protection against rising inflation.

Second, Australian equities continue to deliver strong earnings momentum relative to other global equity markets. Earnings revisions remain positive and the ASX 200 is expected to deliver EPS growth of ~10%+ for FY22.

Third, the ASX 200 dividend yield is ~4.1% ranking equal highest in the developed world. Australia’s dividend yield has been bolstered by high commodity prices, with BHP expected to pay more dividends than the big 4 banks in the 12 months to June 2022. The ASX 200 dividend yield is supported by a high payout ratio, with Australian corporates paying two-thirds of their earnings in dividends. Balance sheets within the ASX 200 remain strong, with Net Debt to EBITDA near two-decade lows.

For March, the strongest gains in the portfolio was BHP Group, Commonwealth Bank/National Australia Bank and Macquarie Group. Ampol (divested in March), Brambles and Spark NZ weighed on attribution.

While the rebound in equity prices has been impressive, we remain cognisant that the challenges of the war in Ukraine, ongoing supply chain disruptions, persistent inflation and rising interest rates should temper investor enthusiasm for the rally in risk assets to continue unabated. Indeed, the recent inversion of the US yield curve has prompted concerns about recession risk for the global economy.

At a portfolio level, we are diversified across the major banks, commodities, consumer staples, healthcare, and telecommunications sectors. Within these sectors we favour exposure to the industry leaders (namely, BHP Group, Cleanaway Waste Management, CSL, & Woolworths Group) that have historically delivered more dependable earnings and dividends and remain well anchored with conservative balance sheets.

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.