Switzer Dividend Growth Fund May 2024 Portfolio Update

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

Performance Summary

The portfolio delivered a return of 0.60% during the month, compared to the S&P/ASX 100 Accumulation Index (ASX 100) return of 0.96%.

Over the past 12 months, SWTZ has paid a distribution yield of 3.74% or 5.28% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 30 April 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 rise in the ASX 100 was mainly driven by the Information Technology and Utilities sectors, up by 4.5% and 3.4% respectively. However, the fall in the Telecommunications sector (-2.8%) partially dampened these gains.

Australian inflation unexpectedly rose to 3.6% in May, pushing back hopes of interest rate cuts and potentially leading to a hike. The relatively flat performance of the Australian share market consisted of large companies performing better than smaller ones. While US inflation remained steady at 2.7%, Australia’s higher inflation suggests a slower economic slowdown and potential policy changes.

At the portfolio level, AGL Energy (AGL), Xero (XRO) and Fisher and Paykel Healthcare Corporation (FPH) were notable positive contributors. AGL continued to perform well as investors are recognising the persistence of high electricity prices as coal is replaced by renewable power generation. XRO and FPH reported their FY24 results, which were well received by the market. XRO delivered stronger-than-expected profits and continues to show discipline in managing growth and improving profitability. FPH’s focus on new products and margin recovery bodes well for future earnings.

Weighing on performance were the underweight position in Commonwealth Bank of Australia (CBA), and the overweight positions in Block (SQ2) and Seek (SEK). CBA rallied despite lacking any new developments, pushing its valuation to an all-time high. It is currently the priciest bank globally and relative to its own history. SQ2 reported its 1Q2024 results which showed a good balance between growth and profitability. Despite exceeding profit expectations for six straight quarters, it trades at a record low valuation. SEK remains the IT sector laggard as job ads stay uninspiring. Market expectations are extremely low, reflected in its historically cheap valuation (only surpassed during the Global Financial Crisis).

The recent market volatility presented opportunities. Amcor (AMC) is a new addition to the portfolio. 2023 was a rough year for AMC as destocking by customers impacted volumes. However, recent management comments suggest this trend is nearing its end. The stock appears extremely undervalued, given its depressed PE multiple on trough earnings.

The market presents a mixed picture, with pockets of extreme overvaluation like CBA and Wesfarmers (WES). By avoiding these areas and focusing on undervalued stocks like AMC and AGL, the portfolio is well-positioned for sustainable returns.

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.

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