Welcome to the September 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 -6.55% in September 2022 compared with the S&P/ASX 200 Accumulation Index benchmark return of -6.17%.
Over the past 12 months, SWTZ has paid a distribution yield of 6.05%, or 8.06% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 30 September 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.
The substantial fall in the ASX 200 was in the shadow of a dramatic rise in government bond yields. An aversion by investors to higher yields had a significant impact on Real Estate (-13.6%) and Technology (-10.6%), whereas Materials (-2.3%) and Energy (-3.8%) recorded the smallest falls in September. Within stocks, BHP Group, Northern Star and OZ Minerals positively contributed, while Ramsay Health Care, Goodman Group and Macquarie Bank were the key detractors.
It is evident that the strong recovery in optimism for stocks (which manifested itself as earnings) from the depths of the pandemic, has now been deflated. Equity markets are facing five main macro headwinds: notably rising interest rates; slowing growth; elevated geo-political risks; stubbornly high inflation; and a strong US dollar. This has created a vicious cycle for equity valuations with the ASX 200 12 month-forward PE compressing from over 18 times to ~13 times this calendar year.
At a company level, the KKR-led Consortium bid for Ramsay Health Care collapsed in September following the announcement that it was not able to improve the terms of an alternative proposal ($88 cash per share for the first 5000 shares, then $78.20 cash + 0.22 Ramsay Sante shares). Notwithstanding this, the ~20% fall in Ramsay’s share price now offers medium-term valuation support. Critically, the latest Medicare data and industry feedback suggests that the delayed recovery in healthcare procedures is now showing tangible signs of recovery. Faced with an unprecedented backlog in elective surgery, healthcare providers are well placed for a sequential recovery in earnings.
In the immediate future, we believe that the financial pressure of tighter financial conditions will continue to weigh on equity market valuations. Despite a myriad of economic headwinds, it is noteworthy that the recent earnings reporting period highlighted that underlying demand remains strong, supported by a robust labour market and well capitalised corporate balance sheets. We expect the upcoming AGM season should provide insight into whether there are signs that recent rate hikes are beginning to moderate economic activity.
From a portfolio perspective, we continue to favour companies that offer stable growth in the Consumer and Industrial sectors, in Healthcare as earnings recover from pandemic disruption and in the Energy and Resources sector where structural shortages in supply should support higher prices as the global economy decarbonises.
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.
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.