Switzer Dividend Growth Fund November 2023 Portfolio Update

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

Performance Summary

The portfolio delivered a return of 2.92% during the month, compare with the S&P/ASX 200 Accumulation Index benchmark return of 5.03%.

Over the past 12 months, SWTZ has paid a distribution yield of 3.78% or 5.18% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 30 November 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

Global equities rallied in November buoyed by evidence that global inflation was finally moderating to a level that would allow the US Federal Reserve to consider not only stopping further interest rate rises, but ultimately looking to cut rates in 2024.

The prospect that central banks have successfully tamed inflation without triggering a recession provided renewed optimism for risk assets. After months of rallying and subsequently peaking at nearly 5% in October, bond yields took a turn and fell to around 4.5% by the end of November, to the relief of equities markets. Undoubtedly, the combination of decelerating inflation and an economy that continues to show a level of resilience has provided a strong foundation for stock market valuations to rebound. With this backdrop, the ASX 200 rose 5% in November – its largest monthly gain since January 2023.

At a portfolio level, Health Care (+11.8%) and Real Estate (+10.8%) were the strongest performing sectors, while Energy (-7.3%) and Utilities (-6.0%) were the worst performing sectors. Specifically, CSL, Goodman Group and Cleanaway Waste Management were notable strong performers. Whereas Santos, Woodside Energy Group and Treasury Wine Estates weighed on performance. The underperformance for the month can be attributed to the Fund’s underweight position in the strongly performing Health Care sector coupled with an overweight position in the struggling Energy sector, impacting overall portfolio returns negatively versus the S&P/ASX 200 Accumulation Index.

In November the Fund increased its exposure to commodities that are essential to the global energy transition. We initiated a position in Pilbara Minerals, which is the largest hard-rock lithium mine in Australia and contributes 8% of global lithium supply. While the lithium market has endured a bear market in 2023 with prices falling ~75% on softening demand and growing global lithium supply, the medium-term fundamentals remain attractive supported by extensive government legislation on CO2 targets.

With the Energy sector falling sharply for two consecutive months, we added to our existing positions in Santos and Woodside Energy Group. Both stocks are trading on attractive dividend yields of +4.5% and a Price to Earnings Ratio below their 5-year averages, at a time when the risks to energy supply either by regulatory and/or geo-political tensions remain elevated.

The immediate risk for inflation and interest rates has eased over the last month, heralding in a level of cautious optimism by equity investors. Nevertheless, the pathway forward will require careful navigation, particularly if inflation remains stubborn ensuring that interest rates stay higher for longer. We are already seeing clear evidence that the higher interest rate environment is progressively weighing on company earnings. Hence, a vigilance on earnings resilience and balance sheet strength continues to be an essential attribute to portfolio construction.

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.

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.