Welcome to the May 2022 Investment Update for the Switzer Dividend Growth Fund (SWTZ or the Fund). Click here to download the report.
The portfolio delivered a return of -2.32% over the month of May, compared with the S&P/ASX 200 Accumulation Index return of -2.60%.
Over the past 12 months, SWTZ has paid a distribution yield of 3.17%, or 4.48% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 31 May 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.
Higher volatility characterised the month of May, with the ASX 200 down 2.6%. A concerted push by central banks to tighten financial conditions to counter the effects of rising inflation continued to weigh on equities. The prospect of rising interest rates was particularly damaging to the Real Estate and Technology sectors which fell 8.9% and 8.7% respectively. Materials (+0.1%) was the only sector to manage a positive return for the month.
Commodities were a welcome source of diversification in the portfolio as markets grappled with tightening financial conditions and persistent high inflation. BHP Group and Santos provided an important ballast to the portfolio in a turbulent month. A prolonged period of under investment, coupled with ongoing supply chain disruptions as economies reopened, has contributed to the sharp rise in commodity prices.
With a backdrop of rising raw material prices, the portfolio also benefited from exposure to Amcor and Brambles which had contractual pass-through price mechanisms to absorb higher costs.
Nevertheless, the portfolio was impacted by Goodman, Macquarie, News Corp and Woolworths on the back of higher interest rates concerns. Weaker-than-expected earnings results from the US bellwether stocks of Amazon, Target, and Walmart due to higher costs brought on by supply chain disruption and excess inventory, also impacted local markets.
The Health Care sector recovery in volumes lost during the COVID-19 pandemic continues to face headwinds in Australia, as the impact of COVID-19 continues to delay medical testing and elective surgery. Whilst the backlog for patient care is inevitably weighing on health companies’ results in the short term, the recovery in earnings should be underpinned by the demand for the treatment of chronic disease, catch-up referrals, and an ageing population. Encouragingly, in the United States, CSL and key industry participants have highlighted that plasma volumes (depressed during the pandemic) are now returning to pre-COVID levels.
We are seeing the first tangible signs that rising interest rates and high input costs are dampening both earnings momentum (with earnings revisions turning negative) and house prices (which are declining for the first time in the cycle). Amid an economic environment characterised by slowing growth, our clear preference is to be invested in companies that offer exposure to Consumer Staples and defensive Industrial sectors. Moreover, in a period of high inflation we continue to hold commodity stocks that are benefiting from elevated prices and offer a hedge against inflation.
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.