Switzer Dividend Growth Fund October 2023 Portfolio Update

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

Performance Summary

The portfolio delivered a return of -2.63% during the month outperforming the S&P/ASX 200 Accumulation Index benchmark return of -3.78%.

Over the past 12 months, SWTZ has paid a distribution yield of 3.83% or 5.22% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 30 September 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

The ASX 200 fell in October as rising bond yields weighed heavily on equity valuations. The tension between rising interest rates and equities caused equity markets to trade near one-year lows in October. The increase in bond yields has been driven by stronger-than-expected economic growth supported by demand for employment and surging migration levels. At this stage, the higher interest rate environment has yet to materially dampen either inflation or retail spending in Australia. A relatively buoyant economic backdrop should be supportive of a more resilient and stable outlook for corporate earnings.

In October higher bond yields had a negative impact on the Technology, Health Care and Real Estate sectors, while heightened geo-political tensions in the Middle East supported the Energy and Resource sectors.

At a portfolio level, the Resource and Telecommunication sectors exhibited the greatest resilience. Specially, Northern Star Resources, Spark New Zealand, and Rio Tinto were notable strong performers. Whereas CSL, Cleanaway Waste Management and Woolworths Group weighed on performance.

During the month we travelled to the United Kingdom to attend investor meetings in the areas of industrial logistics, commodities & energy transition and health care. Key summary points were:

  • Energy transition investment – There are significant government programs to support 2050 net zero targets, with total green infrastructure spending expected to be in the vicinity of ~$60 trillion. The challenges to execute are in permitting/regulatory delays, cost inflation due to lack of skilled labour, raw material constraints, supply chain bottlenecks and higher cost of capital.
  • Decarbonisation at scale – This requires technological breakthroughs for carbon emitting industries, commercial transportation, heavy energy intensive industries, shipping and aviation. The decarbonisation of commercial buildings is a further challenge.
  • Structural tailwinds for commodities – The resource sector will be a beneficiary of a longer period of fossil fuel demand and the metal intensification required for green infrastructure transition.
  • Private hospitals – The industry fundamentals remain attractive in the UK. The public health system has been unable to effectively address the record elective surgery waiting lists ($7.8m waitlist vs $4.5m pre-pandemic). We expect double digit growth in private health insurance and self-pay. UK’s Ramsay Heath Care volumes have recovered above pre-pandemic levels and cost pressures have moderated.

We have clearly passed the period of ultra-low interest rates and global economies are adjusting to a new era of higher borrowing costs. The impact of this is most noticeable in companies with higher debt levels. We expect that while we may be close to the peak of the interest rate cycle, borrowing costs could well remain stubbornly high in the foreseeable future.

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.