fitzpatricks mda specific portfolios · 2019-03-08 · monthly report | fitzpatricks mda 3...

TOP 10 POSITIONS

Westpac Banking Corporation

Macquarie Atlas Roads Group

Transurban Group

CSL Limited

Australia and New Zealand Banking Group Limited

Commonwealth Bank of Australia

Lovisa Holdings Limited

Magellan Financial Group Limited

ResMed Inc.

Speedcast International Limited

FITZPATRICKS MDA SPECIFIC PORTFOLIOS

Monthly Report, December 2017

www.fitz.com.au 1Monthly Report | Fitzpatricks MDA

Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 December 2017. Performance is net of investment management fees, does not deduct portfolio administration fees and assumes reinvestment of all distributions. Past performance is not a reliable indicator of future performance.

AUSTRALIAN EQUITIES – DIRECT • The Portfolio posted an impressive return of 2.3% in December and

outperformed the benchmark index (S&P/ASX 200). This was despite our Portfolio having an underweight position to the strong performing Energy and Resources sectors.

• The outcome reflects strong stock selection across a range of Portfolio names, but just as importantly avoiding a range of poorer performing companies.

• International jewelry company Lovisa Holdings (LOV) continued to be one of the best contributors as the business continued to benefit from strong store sales growth. Our more recent additions to the Portfolio, miners BHP Billiton (BHP) and Rio Tinto (RIO) also contributed encouragingly as the mining giants capped off the year to close their stock prices at year end highs.

• Despite the concentrated nature of the Portfolio (~20-30 stocks), exposures remain well diversified across industries and sectors. Given our significant variance from the S&P ASX 200 Accumulation Index, (being a highly concentrated benchmark), individual stock selection as a result of our investment process will be a key driver of our returns.

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Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

MDA Australian Equities (Direct) Portfolio

S&P/ASX 200 Accumulation Index

FITZPATRICKS MDA SPECIFIC PORTFOLIOS MONTHLY REPORT


Performance Volatility Inception

1 Month 3 Months 6 Months 1 Year 2 Years p.a.

3 Years p.a.

5 Years p.a.

Since Inception

Since Inception Date

MDA Australian Equities (Managed Funds) Portfolio 2.8% 9.6% 10.0% 15.0% 6.7% 10.0% 11.4% 9.3% 10.3% 30/09/10

S&P/ASX 200 Accumulation Index 1.8% 7.6% 8.4% 11.8% 11.8% 8.6% 10.2% 8.7% 11.4% 30/09/10

PERFORMANCE

AUSTRALIAN EQUITIES – DIRECT (cont.)

• The Portfolio notably outperformed the benchmark S&P ASX 200 Accumulation Index, returning 2.8% in December. The strong performance was reinforced by the positive returns generated by all of the underlying managers.

• A continuation of the supportive global economic backdrop has buoyed the recent rally in Australian equities, creating an


AUSTRALIAN EQUITIES – MANAGED FUNDS

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Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

MDA Australian Equities (Managed Funds) Portfolio

S&P/ASX 200 Accumulation Index

opportunity for Australian corporates to deliver good profit results.

• Both the Atrium Equity Opportunities Fund and Bennelong ex-20 Australian Equities Fund benefitted from strong stock selection across a range of investments, posting returns of 2.3% and 2.6% respectively.

• The SGH ICE Fund returned 2.0% for the month with key performance contributions coming from investments in Technology Company Praemium Limited (PPS), affordable independent living company Lifestyle Communities (LIC) and international property company Westfield Group (WFD). The Fund remains well diversified across sectors and company sizes, with earnings growth also well in excess of the current market index.

PERFORMANCE



3 Years p.a.

5 Years p.a.

Since Inception


MDA Australian Equities (Direct) Portfolio 2.3% 9.9% 9.3% 14.4% 6.9% 9.9% 12.7% 11.5% 12.4% 30/09/02

S&P/ASX 200 Accumulation Index 1.8% 7.6% 8.4% 11.8% 11.8% 8.6% 10.2% 9.5% 12.7% 30/09/02




INTERNATIONAL EQUITIES


• International equity markets generally produced positive local currency returns, however, Australian dollar results were negatively impacted by a 3.0% rally in the value of the Australian currency relative to the US dollar. This saw the majority of our international equity managers deliver positive local currency returns that translated into negative


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Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

MDA International Equities PortfolioMSCI Wor ld ex Australia (Net in AUD)MSCI Wor ld ex Australia (Net Local)



3 Years p.a.

5 Years p.a.

Since Inception


MDA International Equities Portfolio -1.4% 5.9% 8.8% 16.3% 10.9% 12.7% 16.7% 8.4% 9.9% 30/09/02

MSCI World ex Australia, (Net in AUD) -1.7% 5.8% 8.5% 13.0% 10.6% 11.0% 18.4% 6.6% 11.4% 30/09/02

MSCI World ex Australia (Net Local) 1.1% 5.3% 9.5% 18.7% 13.7% 9.7% 13.4% 8.7% 13.0% 30/09/02

PERFORMANCE


returns in Australian dollar terms.

• Our allocation to managers Antipodes and Magellan were both adversely impacted by the material move of the USD over the month. However, quarterly and year to date performance remained very strong and both managers remain actively managed and well diversified across multiple geographies and sectors.

• The Australian dollar strengthened materially against the US dollar during the month reflecting its position as a ‘risk-on’ currency which was supported by buoyant commodity prices. As we have seen in recent times currency can be very volatile and impossible to predict on a shorter term basis; however, being appropriately positioned over the longer term can add materially to Portfolio returns. We remain of the view that the AUD remains overvalued relative to the US dollar and continue to hold our international shares on an unhedged basis as we expect this to be a meaningful contributor to Portfolio returns over the longer term.



• The Alternatives Portfolio returned an encouraging 1.1%for December, with performance predominantly positive across underlying managers.

• Our exposure to Equity Market Neutral managers continuesto deliver strong contributions. The Tasman Market Neutral Fund returned 5.8% for December, with returns mostly generated on the long side; however, several short positions also added to performance.

• Our global macro managers



3 Years p.a.

5 Years p.a.

Since Inception


MDA Alternatives Portfolio 1.0% 3.4% 4.8% 5.9% -0.6% 3.3% 5.0% 4.9% 3.6% 30/09/10

RBA Cash Rate 0.1% 0.4% 0.7% 1.5% 1.6% 1.8% 2.1% 2.8% 0.3% 30/09/10


PERFORMANCE

LIQUID ALTERNATIVES

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Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

MDA Alternatives Portfolios

RBA Cash Rate


were able to benefit from strengthening economic conditions across Asia including an appreciation of the Chinesecurrency. Our systematic managers profited from ongoing equity market appreciation, with mixed results amongstcurrency exposures and small profits from rising Energy prices.

• We have intentionally kept our Private Market exposures small and yet diverse in aggregate. These positionscontinue to deliver consistent income with occasional capital uplift as properties are revalued. We continue to assessnew proposals to add to this Portfolio over time.



• The MDA Rates & Credit (Fixed Income) Portfolio continued to add positively to performance and closed out December with a return of 0.1%. The Portfolios’ largest exposures the Kapstream Absolute Return Income Fund and Smarter Money Active Cash Fund (SMAC) both returned 0.2% in December.

• Smarter Money has started to add credit positions following a build-up of higher exposures to cash. The manager holds a long-standing view that senior unsecured debt is attractively



3 Years p.a.

5 Years p.a.

Since Inception


MDA Rates & Credit (Fixed Income) 0.1% 0.8% 1.5% 3.1% 4.1% 4.0% 4.7% 6.0% 4.8% 30/09/02

Bloomberg AusBond Composite Bond Index - All Maturities (TR) -0.5% 1.4% 1.4% 3.7% 3.3% 3.1% 4.2% 5.7% 2.8% 30/09/02

RBA Cash Rate 0.1% 0.4% 0.7% 1.5% 1.6% 1.8% 2.1% 4.1% 0.5% 30/09/02

Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 December 2017. Performance is net of investment management fees, does not deduct portfolio administration fees and assumes reinvestment of all distributions. Past performance is not a reliable indicator of future performance. Since August 2016, the MDA Rates & Credit (Fixed Income) Portfolio has implemented its investment strategy through an allocation to the Atrium Enhanced Fixed Income Fund and cash.

PERFORMANCE

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Sep-02 Jun-03 Mar-04 Dec-04 Sep-05 Jun-06 Mar-07 Dec-07 Sep-08 Jun-09 Mar-10 Dec-10 Sep-11 Jun-12 Mar-13 Dec-13 Sep-14 Jun-15 Mar-16 Dec-16 Sep-17

MDA Rates & Credit (Fixed Income)RBA Cash RateBloomberg AusBond Composite Bond Index - All Maturities (TR)

RATES & CREDIT (FIXED INCOME)

Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 December 2017. Performance is net of investment management fees, does not deduct portfolio administration fees and assumes reinvestment of all distributions. Past performance is not a reliable indicator of future performance. Since August 2016, the MDA Rates & Credit (Fixed Income) Portfolio has implemented its investment strategy through an allocation to the Atrium Enhanced Fixed Income Fund and cash.

priced, and retains the largest portion (30%) of its exposure there with a holding of around 11% in AAA-rated Residential Mortgage Backed Securities (this is skewed to older vintage deals to avoid mortgages written in the past 2 years).

• Allocations to the JP Morgan Global Strategic Bond Fund (GSBF) continued to track solidly in December, returning 0.4%. The Fund remains significantly exposed to US dollar Investment Grade and High Yield credit which have been significant positive contributors to performance over the year.


MARKET COMMENTARY

December closed out a very strong year for risk markets, with yet another rise in equities. The US S&P 500 Total Return Index rose 1.1% for the month, to be up 21.8% for the year and the Australian ASX 200 returned 1.8% for December, up 11.8% for the 12 months. Europe lagged slightly, the MSCI European Index returning 0.8% for December while the MSCI Emerging Markets Index was up 2.6%, resulting in a very sharp 30.6% return for the year (local currency). Consistent with the strength in equity markets, credit markets closed on a very firm footing. Bond yields were higher over the month and year at the short end, and curves continued to flatten. The Australian dollar rebounded against the US dollar, rising 3.0%, and volatility remained subdued and well below historic levels. The lack of volatility in markets is best seen by the fact that the S&P 500 Total Return Index has not had a negative month since October 2016, the month prior to the US election. Whilst there was volatility within various sectors for the month of December (Health Care and Utilities were both lower), it is more instructive to look to the 12 month numbers to understand the driver of the US market. Information Technology (IT) returned 38.8% for 2017, with most other major sectors delivering returns close to or below the index. In the S&P 500, IT closed the year with a weighting of 24%; stocks such as Facebook (+53%), Google (+35%), Apple (+48%), and Microsoft (+40%) saw incredible returns over the year and are now some of the world’s largest companies. The large weight and strong performance goes a long way to account for the significant outperformance of the US market against other major markets over the year, although optimism around the corporate tax package in late

December also provided a boost, as did continued low interest rates and a weakening US dollar. In contrast, the Australian market has less than 2% weighting to IT, and this accounts for a substantial portion of relative underperformance against the US for the year, although the Banks lagged, proving another headwind for the ASX 200. The offsetting positive was the Resource sector, the S&P/ASX 200 Resources Accumulation index returned 25.9% for the year as many major commodity prices were seen to have bottomed. European equities lagged somewhat for the year, the MSCI European Index returning 10.8% (EUR), partly as core European markets struggled in the fourth quarter. France was flat and Germany rose a paltry 0.7% in the fourth quarter reflecting the inability of Chancellor Merkel to form a strong coalition government following the October election. Emerging Markets were led on the upside by Brazil (exiting a recession), and Indonesia, whilst Russia was flat for the year and Thailand was an underperformer partly reflecting ongoing political uncertainties.Credit markets closed on a firm note, with spreads tightening sharply in Australia, more so than the major offshore credit markets. The Australian market saw credit spreads contract by almost 5 basis points (bps) over the month to close at new post-GFC tights. Spreads in Australia had commenced the year at around 100 bps. US Investment Grade corporate bond spreads tightened 3bps in December as did European Investment Grade. The focus in bond markets remains less on the direction of yields, but more the change in the shape of the yield curve. Major market curves continued to flatten over 2017, as short end yields rose in

general, with long end rates being sustained at lower levels in the face of a lack of confidence in the longer term inflation outlook, and ongoing central bank buying. As always, major markets look to the US treasury market first, and as the Federal Reserve hiked rates 3 times in 2017 (in March, June and December), this saw yields rise at the short end. The Fed also commenced the reduction of its balance sheet in October as it expressed confidence that inflation will head back towards its 2% objective. Janet Yellen’s replacement Jerome Powell, from early 2018 was taken by markets as being likely to see a continuation of the current policy stance, a gradual move of policy rates from emergency settings adopted in the post-GFC era. It is notable that less buying by the Fed did not translate into higher bond yields at the longer end, as the European Central Bank and Bank of Japan continue to add to their own balance sheets in significant size, keeping yields in those markets low, and leaking into demand for other bond markets.The Australian dollar reversed its fall against the US dollar over December (rising 3.0% to 0.78, leaving it 8.4% higher over the year). Against the Euro, the Australian dollar declined over the 12 months as the Euro rose sharply against the US dollar. Overall, the most notable move in currency markets over 2017 was a weakening of the US dollar against most major currencies, following its sharp rise in the 6 weeks following the election of the new US President in November 2016. This partly reflected political uncertainty and inconsistency inside the US, but also a series of downwards surprises on US inflation, and hence an ongoing view that the Fed will continue to be cautious as it extricates itself from an extended period of effectively zero-rates and a significantly increased balance sheet.



PORTFOLIO TARGET ALLOCATIONS

Target Weights

AS AT 31 DECEMBER 2017

MDA Australian Equities (Direct)

MDA Australian Equities

(Managed Funds)

MDA International

Equities

Liquid Alternatives

Rates & Credit (Fixed Income)

TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%

CASH 2.0% 2.0% 2.0% 2.0% 2.0%

RATES AND CREDIT 0.0% 0.0% 0.0% 0.0% 98.0%

Global Fixed Income 0.0% 0.0% 0.0% 0.0% 98.0%

Atrium Enhanced Fixed Income Fund 0.0% 0.0% 0.0% 0.0% 98.0%

EQUITIES 98.0% 98.0% 98.0% 0.0% 0.0%

Australian Equities 98.0% 98.0% 0.0% 0.0% 0.0%

Atrium Equity Opportunities Fund 0.0% 46.6% 0.0% 0.0% 0.0%

SGH ICE Fund 0.0% 41.7% 0.0% 0.0% 0.0%

Bennelong ex-20 Australian Equities Fund 0.0% 9.8% 0.0% 0.0% 0.0%

International Equities 0.0% 0.0% 98.0% 0.0% 0.0%

Magellan Global Equities Mandate 0.0% 0.0% 53.9% 0.0% 0.0%

Northcape Capital Global Emerging Markets Fund 0.0% 0.0% 1.0% 0.0% 0.0%

Antipodes Global Fund - Long Only 0.0% 0.0% 43.1% 0.0% 0.0%

LIQUID ALTERNATIVES AND PRIVATE MARKETS 0.0% 0.0% 0.0% 98.0% 0.0%

Atrium Alternatives Fund 0.0% 0.0% 0.0% 98.0% 0.0%

Alphadyne Segregated Portfolio * 0.0% 0.0% 0.0% 2.8% 0.0%

Zebedee Segregated Portfolio * 0.0% 0.0% 0.0% 11.8% 0.0%

Latigo Segregated Portfolio * 0.0% 0.0% 0.0% 4.9% 0.0%

Core Diversified Trend Segregated Portfolio * 0.0% 0.0% 0.0% 3.5% 0.0%

Bennelong Long Short Equity Mandate 0.0% 0.0% 0.0% 3.9% 0.0%

Antipodes Global Fund 0.0% 0.0% 0.0% 4.9% 0.0%

P/E Global FX Alpha Fund 0.0% 0.0% 0.0% 4.9% 0.0%

GMO Global Systematic Macro Fund 0.0% 0.0% 0.0% 6.4% 0.0%

Regal Tasman Market Neutral Fund 0.0% 0.0% 0.0% 10.8% 0.0%

One River Systematic Trend 0.0% 0.0% 0.0% 2.9% 0.0%

Man Alternative Risk Premia 0.0% 0.0% 0.0% 14.7% 0.0%

Two Trees Global Macro Fund 0.0% 0.0% 0.0% 3.4% 0.0%

Core Commercial Property Assets 0.0% 0.0% 0.0% 1.2% 0.0%

Value Add Property Assets 0.0% 0.0% 0.0% 0.5% 0.0%

Opportunistic Equity Assets 0.0% 0.0% 0.0% 1.9% 0.0%

Private Debt 0.0% 0.0% 0.0% 4.9% 0.0%

Smarter Money Active Cash 0.0% 0.0% 0.0% 3.9% 0.0%

Liquidity 0.0% 0.0% 0.0% 10.6% 0.0%


Source: Atrium and External Investment Manager / Administrator websites or reports. Target weights as at 31 December 2017. Holdings within the Atrium Alternatives Fund are given on a look through basis, individual clients will not hold these funds directly. Investments denoted by * are in managed accounts accessed via the Crown Atrium Segregated Portfolio. The Magellan Global Equities Mandate is a separately managed portfolio managed by Magellan Asset Management Limited in a manner consistent with the Magellan Global Fund. The Bennelong Long Short Equity Mandate is a separately managed portfolio managed by Bennelong Long Short Equity Management Pty Ltd in a manner consistent with the Bennelong Long Short Equity Fund.

Important InformationThe information in this document (Information) is provided by Fitzpatricks Private Wealth Pty Ltd (ABN 33 093 667 595, AFSL 247 429) (Fitzpatricks), and where relevant, its related bodies corporate. Unless otherwise stated, the Information is of a general nature only and does not take into account the objectives, financial situation or needs of any person. Before acting on the Information, investors should consider its appropriateness having regard to their own objectives, financial situation and needs and obtain professional advice. No liability is accepted for any loss or damage as a result of any reliance on the Information. Past performance is not a reliable indicator of future performance. Future performance and return of capital is not guaranteed.

Performance figures relate to the model portfolios offered by Fitzpatricks, with investment management implemented by underlying investment managers selected by Fitzpatricks. The details of each model portfolio may change and you should keep this fluidity in mind when considering figures. Actual performance will differ among clients depending on the timing of their investment, the ability of an investor to nominate stocks they do or do not wish to hold and the level of variation from the models. Figures are post portfolio management fees and expenses and assume reinvestment of distributions. They do not take into account inflation or tax or adviser fees.

For more information please contact your Adviser or Fitzpatricks Private Wealth:

SYDNEYLevel 5, Challis House 4 Martin PlaceSydney NSW 2000 PHONE 02 9248 8000

GPO Box 1193 Sydney NSW 2001

BRISBANE37a Kennigo Street Spring Hill QLD 4000

PHONE 07 3105 6500

EMAIL [email protected]


fitzpatricks mda specific portfolios · 2019-03-08 · monthly report | fitzpatricks mda 3...

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