Welcome to the October 2021 Investment Update for the Switzer Dividend Growth Fund (SWTZ or the Fund). Click here to download the report.
The portfolio delivered a positive return of -1.09% over the month of October, compared with the S&P/ASX 200 Accumulation Index return of -0.10%.
Over the past 12 months, SWTZ has paid a distribution yield of 3.29%, or 4.63% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 31 October 2021 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.
With the Australian equity market returning more than 70% since the pandemic lows of March 2020, the recovery in stock prices moderated in October, with the ASX 200 finishing marginally lower by 0.1%.
A growing myriad of challenges are weighing on equity markets, including supply chain bottlenecks, energy prices grinding higher, financial deleveraging in China, the persistence of the COVID-19 Delta variant and rising bond yields as central banks begin tightening liquidity conditions. Collectively, each of these factors has heighten investor uncertainty. Yet encouragingly, it is pleasing to observe that the latest AGM and quarterly updates have delivered more positive than negative surprises in terms of current trading conditions and earnings guidance. Despite many companies highlighting supply chain and cost challenges, there have been more upgrades than downgrades to earnings estimates.
At a portfolio level, the 1Q21 earnings results can be classified as:
- Upgrade to earnings – Healius (beneficiary of elevated COVID-19 testing); Goodman Group (lifted FY22 earnings per share guidance to +15%); Macquarie Group (elevated trading, investment income and asset sales); News Corp (stronger than expected digital real estate).
- Confirmed guidance – Amcor and Brambles (successfully navigated elevated inflation using pass through cost mechanisms and pricing power); CSL (ongoing recovery in plasma collections).
- Downgrade to earnings – Westpac (disappointing execution on margins and expenses).
The reopening of economies has led to a significant increase in the demand for energy. Global oil demand has rebounded at a time when there is a lack of new supply. The combination of rising demand and shortages in energy supply has ignited prices for both oil and gas. For now, the portfolio retains an investment in Ampol and Santos as both companies benefit from current favourable industry conditions. Yet the sunset for the fossil industry has begun and it is imperative for energy companies not only to lower their carbon emissions, but transition to a greener energy footprint.
In summary, there is growing confidence that we are now facing a clearer path to normalisation over the summer months with the end of State lockdowns and the reopening of international borders, providing further support of a rebound in economic activity. While monetary policy measures may begin to tighten modestly, we expect fiscal stimulus may re-emerge as we head toward a federal election in 1H calendar 2022. Overall, the portfolio retains its focus on companies that can deliver long-term profit and dividend growth.
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.