Switzer Dividend Growth Fund February 2024 Portfolio Update

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

Performance Summary

The portfolio delivered a return of -0.10% during the month, compared with the S&P/ASX 200 Accumulation Index (ASX 200) return of 0.79%.

Over the past 12 months, SWTZ has paid a distribution yield of 3.72% or 5.18% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 29 February 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 ASX 200 reached a new high since August 2021 in February 2024. The recent rally in equity markets has been driven predominantly by stronger economic growth in the US, and in Australia on better-than-expected December half earnings results.

Overall, for the ASX 200 there were more earnings beats than misses despite ongoing inflationary pressures. Companies continued to benefit from resilient pricing power and a stringent focus on cost control, an easing of raw material costs and the normalisation of supply chains. Wage inflation and interest expense were the most significant cost issues for companies in the reporting period. This was particularly evident for Amcor (higher interest expense) and Woolworths Group (wage cost inflation). However, the half-year earnings results of Brambles and CSL provided clear signs of an easing of operating cost pressures.

In February at a sector level there was a sharp divergence in returns. On the positive side, Banks (+3.6%), Discretionary Retail (+9.7%) and Technology (+19.7%) were the strongest sectors. Technology was the best performing sector, benefiting from the global enthusiasm for AI adoption and a continued robust profile for earnings growth led by WiseTech Global. A secondary beneficiary of AI and cloud computing was Goodman Group, which delivered earnings ahead of expectations and remains well placed to benefit from the demand for new data centres globally. Discretionary Retail benefited from a resilient consumer and a stronger trading update by Wesfarmers.

Investor optimism from the Banks’ latest results highlighted stable operating trends and well-capitalised balance sheets supporting dividends and share buy backs. Nevertheless, valuations now look expensive with the Banks now trading at near record P/E multiples. On the negative side, lower commodity prices weighed down Energy (-5.9%) and Materials (-4.8%).

At a portfolio level, Goodman Group, Treasury Wine Estates and Pilbara Minerals were notable strong performers. Whereas Spark New Zealand, Woolworths Group and Woodside Energy Group were a drag on performance.

The recent US and Australian earnings reporting periods have again highlighted that corporate earnings remain relatively resilient despite the impact of rising interest rates. While earnings growth is expected to slow for the remainder of calendar 2024, there are tangible signs that the global de-stocking post pandemic is near to completion. This signals that demand is better placed to recover and, in aggregate, Australian companies’ balance sheets remain well capitalised to weather the impact of higher interest costs.

The valuation of the ASX 200 now looks relatively full on a 12 month forward P/E of ~16.2 times relative to its long-term average of ~14.2 times. At a portfolio level, we remain positioned in industry-leading companies with strong balance sheets which are well placed to deliver earnings growth through the economic cycle.

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.

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