Switzer Dividend Growth Fund portfolio update – March 2020

In this portfolio update Peter Switzer talks to Shawn Burns, Portfolio Manager of the Switzer Dividend Growth Fund (SWTZ), to get an update on how the portfolio is faring through the current volatility.

Shawn also gives his outlook for SWTZ distributions in the months ahead.

Video Transcript

Peter Switzer (PS): Hello and welcome to our monthly catch up with Shawn Burns, the Portfolio Manager of the Switzer Dividend Growth Fund. Shawn, how you going?

Shawn Burns (SB): Good thanks Peter, how’s yourself?

PS: Well I tell you what, I’d be miles better if the stock market was about 30 percent higher. But still, we’ve got to play the game in front of us. What are you seeing about the market right now, and how are you playing the market?

SB: Cautiously, we’ve seen just recently, we’ve seen a bit of a bounce, a bit of stabilization. I suspect that the market will be marking time a bit from now on, until we start to see some firmer reads. So, it got heavily sold off, it’s bounced back a bit, a reasonable bounce. Now I suspect it’ll stick around until we start to see some evidence one way or the other how this is starting to pan out.

PS: It seems to me, Shawn, that we need to see continued improvement with the virus data, namely infection and death rates. And then we have to, I guess, see some positive news around the reduction of the restrictions that are effectively holding back the economies, and therefore really hurting stock prices.

SB: Oh yes. I mean the drop in economic activity is severe across a whole range of activities. You know, and we’re seeing that. We’ll see that in August for sure, when the results come out.

PS: So, what are you seeing as opportunities for the Switzer Dividend Growth Fund?

SB: I think with Switzer, it sticks to the quality end of the portfolios. We’ve just participated in a couple of capital raises opportunistically for stocks we did not previously hold.*  So we’ve gone in and bought some, those we feel have worked out to be cheap stock. I think generally we are sticking to those companies which we think are the strongest.

We aren’t going out the risk curve. I think we’ve seen a whole range of companies raise capital so far and not one of the stocks we hold in the Switzer Dividend Growth Fund has raised capital. So, I think that’s an indication that the quality, you know touch wood, the quality of the companies that we hold, that they’re not desperate for cash. Of course, how long this goes on for will put more and more pressure on those companies. But I think that we weren’t in that first wave is a good sign for the fund.

PS: Some of our unit holders will be concerned about stories about big companies cutting dividends and the effect on distributions. What kind of insights do you have at this point in time?

SB: I think it’s true. I think the next six months is going to be very tough for distributions. I think that we’re starting to see the signs, we’ve seen APRA come out and specifically tell the banks and insurers to be very conservative in their payouts. I think that we’ll see that.

We saw the small banks, such as the Bank of Queensland, defer their dividend. The big banks will all come out next month with their results ANZ, Westpac and NAB. I suspect that they will, at best, drop their dividends through this.

And I think also we’ll see towards the results season a lot of companies will err to the side of conservativeness and try and keep their balance sheets intact. There are companies that haven’t raised capital, s they’ll be conserving cash. I suspect from now until the end of this year, until Christmas, dividends and income will be very depressed unfortunately.

PS: Well on that subject, have you been nibbling at companies that look like fantastic value, and therefore maybe the capital gain – provided the best case scenario for the virus and the economy actually unfolds over the next nine months or so – could it be that we’ll get a nice surprise on the capital gains side?

SB: I think that, assuming what you just said Peter, we do get some progress on the virus and some of these restraints on economic activity start to ease over the next several months, I think the share prices on offer now are quite attractive. So it’s a trade-off. I think you’re getting potential for capital growth, but over the next several months, I think dividends will be quite slim compared to what we’ve been used to. But we should see share prices compensate for that to some degree.

PS: Shawn Burns that’s for joining us.

SB: Thanks Peter.

*Please note there has been a slight revision to the transcript for the purpose of clarification

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