sestante dynamic asser ve por olio monthly investment ......2.52 5.38 5.48 sestante dynamic asser ve...
TRANSCRIPT
Performance Review
Por�olio Performance vs Target Return (% AUD)
1 Month 3 Months 6 Months 1 Year Since 1 March 1917.50%
15.00%
12.50%
10.00%
7.50%
5.00%
2.50%
0.00%
2.50%
5.00%
7.50% 5.73
15.01
9.65
4.08
0.51
0.381.20
2.52
5.38 5.48
Sestante Dynamic Asser�ve RBA Cash Rate +4.5%p.a.
Re
turn
Sestante Dynamic Asser�ve Por�olioMonthly Investment ReportAs at 30 April 2020
Dynamic
Page 1 of 5
Asset Class
Diversified
Growth/Defensive Split
85%/15%
Investment Objec�ve
Target RBA Cash Rate +4.5%
p.a. over rolling 5 year
periods a�er fees
Por�olio Incep�on Date
7 February 2019
Management Costs¹
0.58%
Number of Holdings
1040
Por�olio availability
Hub 24
Contents
1: Performance Review
2. Market Review
3. Market Outlook
4: Por�olio Overview
5: About Us
1 Es�mated current total fee before
transac�on costs and pla�orm fees
but a�er AZ Sestante manager
discounts. As at 31 March 2020
Market Review
Australian Equi�esA�er suffering its worst crash since World War 2 in March, the Australian stock market rebounded strongly in April, recording its best
month in modern history. The S&P/ASX 300 TR was up +9.02%, primarily on the back of the recovery in cyclical sectors and in AREITs;
further gains for the general index were prevented by the performance of banks, as the group ended April only slightly posi�ve a�er
the “Big Four” set aside more provisions for baddebt, slashed or suspended dividends and in some cases launched capital increases.
Energy was the best performing sector despite the historic plunge of the WTI (“West Texas Intermediate”) crude oil price below zero on
April 20, as traders dumped the May future contract that was expiring on April 21 even at a cost in order to avoid taking physical
delivery. The unprecedented collapse in nega�ve territory was mostly technical and quickly reabsorbed. In the end, oil was down
8.01% for the month, closing below the important threshold of 20 USD per barrel, that is, below replacement cost, for the first �me
since January 2002. (con�nued...)
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The Sestante Dynamic Asser�ve por�olio significantly outperformed during April, returning +5.73% for the month.
All growth assets drove returns during the month, in par�cular Australian equi�es.
The severity of the downturn in February/March accounts for challenging 3 and 6 month returns.
Powered by bestinclass investment managers.Designed by
Past performance is not an indica�on of future performance. Net performance figures are calculated using exit prices, net of fees and reflect the annual reinvestment of
distribu�on. Retail investors should refer to net returns. If inves�ng through an IDPS Provider, the total a�er fees performance return of your investment in the Fund may be
different from the informa�on in this report.
Source: Morningstar Direct
Market Review con�nued
Returns for energy stocks were almost triple that of the broader index in
spite of the extraordinary losses in the value of the commodity.
Technology, consumer discre�onary and materials posted double digit
gains, while the par�cipa�on of defensives in the rally was muted, with
telecom and healthcare capturing 50% of the upside, u�li�es 35% and
consumer staples 25%. Finally, mid and smaller companies strongly
outperformed the Top 20 for the first �me in 2020.
Interna�onal Equi�esA�er outperforming the domes�c market on the way down, the MSCI AC
World Daily TR confirmed its posi�ve momentum on the way up, rising
+10.71% in USD terms. However, contrary to what happened in the
previous month, its returns were greatly reduced when translated in AUD
terms, stopping at just +3.59%. The Australian Dollar con�nued its
recovery from its momentous plunge below 60 cents visàvis the US
Dollar which occurred in the second half of March, adding another
+6.92% and ending the month above 65 cents. Sector trends were
broadly in line with those observed in the domes�c market. Cyclicals,
with the excep�on of financials, caught a bid a�er the crash while
defensives lagged; however, within the la�er group, healthcare and
telecom managed to outperform the general index on the back of the
large advances recorded by the American mega cap growth names
belonging to those sectors. The US market trounced all major
interna�onal rivals due to its greater skew towards technology,
communica�on services, healthcare and consumer discre�onary, which
makes up 64% of the S&P 500; emerging markets came a distant second,
with just a third of the return, while Europe and Japan were down in AUD
terms.
Property and InfrastructureProperty and infrastructure (+6.14% and +7.92% respec�vely in AUD
terms) rallied sharply in the second week of April, but then they began to
fade as investors grew worried about the impact that the coronavirus
may have on unlisted real assets; as large ins�tu�ons have loaded up on
the la�er in recent years, they may be forced to look for liquidity in the
listed space.
Domes�c and Global Fixed IncomeDomes�c fixed income (0.07%) was unchanged for the month as the
chaos unleashed by the announcement of QE by the RBA subsided. The
yield curve steepened as the 2 year moved 3 Bps lower, at 0.22%, and the
5 and 10 year moved 8 Bps and 13 Bps higher, to 0.42% and 0.89%
respec�vely. Global fixed income hedged back to AUD (+1.50%) stole all
the a�en�on on April 9 when the FED announced that it would buy junk
bonds, causing government bond yields to fall and credit spreads to
�ghten. The stunning move caused the en�re US yield curve to shi�
below the Australian yield curve for the first �me since December 2017.
At the end of April the spread between the US and the Australian 10 year
dropped to 25 Bps a�er averaging around 60 Bps in the previous 12
months.
Alterna�vesFinally, Alterna�ves (+2.76%) recouped a third of the losses suffered in
Q1 as returns were mostly posi�ve across strategies, with equity long
bias, event driven and long/short equi�es claiming the top three spots.
Market Returns
Sestante Dynamic Asser�ve Por�olioMonthly Investment ReportAs at 30 April 2020
Page 2 of 5
Major Index Returns
1 Month 3 Months 6 Months 1 Year 3 Years
S&P/ASX 200 TR AUD
MSCI World Ex Australia GR AUD
Bloomberg AusBond Composite 0+Y TR AUD
BBgBarc Global Aggregate TR Hdg AUD
S&P Global Infrastructure NR AUD
FTSE EPRA Nareit Global REITs TR AUD
RBA Cash Rate Target
8.78 20.32 15.48 9.06 1.92
2.28 22.14 15.89 9.21 2.67
0.07 0.57 2.06 6.42 5.46
3.67 9.48 1.81 4.10 10.59
0.56 23.80 22.04 12.04 2.43
0.02 0.10 0.29 0.83 1.28
1.50 0.97 2.30 7.20 4.62
Source: Morningstar Direct
Market Outlook
Background
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The US government will borrow a record 3 Tril USD in Q2 2020 alone, on top of
the 477 Bil USD borrowed in Q1 and of the 677 Bil USD projected for Q3.
As a result, the US na�onal debt has grown by 1.5 Tril USD to 24.9 Tril USD since
March 1, a 6.4% increase.
As a reference, in 2009, at the depth of the GFC, the Obama administra�on
increased the budget deficit by 1.4 Tril USD, an amount more than triple the
preceding largest shor�all on record.
2020 is on track to pulverize that high by a similar order of magnitude. Es�mates
vary, but it is expected that the FED will mone�ze via direct purchases (QE) or by
indirectly providing liquidity to banks to finance their purchases of Treasuries
(repo) around 2 Tril USD of the newly issued government paper.
In essence, the US government has reached the point where its financing needs
are so large that there are no longer natural buyers for all of its debt, except for
the FED.
Hence, suppor�ng government spending has become defacto the unofficial
mandate of the central bank. That may explain why at the �me of the wri�ng of
this note (May 12) the FED does not appear to have bought any corporate bonds
yet.
Sure, it had to set up two SPVs for this purpose in order to bypass the restric�ons
imposed by the legislator, and ques�ons about the legality of these ac�ons
remain; however, a simpler explana�on would be that absorbing Treasuries has
been a full�me job in the past 90 days, leaving no capacity for other buying.
If so, the level of support that investors assigns to credit markets, high yield in
par�cular, may be overes�mated, and given that we may be just at the start of a
new bankruptcy cycle, corporate bonds may not be the right place to park money
while global economies deal with the a�ermath of the coronavirus.
Government bonds may not be either, but for the opposite reason. In fact, a
success on the part of the FED in reigni�ng the global credit cycle à la 2009 will
lead to higher long bond yields.
In short, fixed income presents a dilemma: credit offers the carry, but liquidity
� remains scarce and the asset class may suffer if the FED does not do enough;
conversely, government bonds offer almost no carry and may suffer if the FED
does enough.
Impact
These considera�ons lead us to posit that US large cap equi�es have become the new
“safe haven” of choice for worldwide investors.
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First of all, over �me the S&P 500 has become less and less representa�ve of the
US real economy, which, as we know, has just seen its biggest quarterly
contrac�on (4.8%) since Q4 2008. In fact, 5 “Big Tech” names (Microso�,
Amazon, Apple, Google and Facebook) account now for more than 21% of the
index.
Second, we think that US equi�es will be a winner whether the FED is successful
or not in its refla�on a�empt.
In the first case, the amount of s�mulus administered by the US central bank is
sufficient to sustain domes�c and global economic ac�vity, driving the US Dollar lower
and the Rest of the World to outperform US. In this scenario, US equi�es may not be the
best performing asset class in rela�ve terms, but they are definitely going to generate
posi�ve returns. However, the second case is more interes�ng, on top of being the most
likely in our opinion. In fact, because the FED can only inject money into the domes�c
economy, being not successful in its objec�ve means that those dollars remain trapped
in US and do not flow to the Rest of the World; hence, growth condi�ons in US remains
compara�vely be�er, causing US equi�es at least to outperform their global peers, but
poten�ally to eke out some gains in an ocean of red. That’s precisely what has
transpired since the beginning of the crisis: at the end of April, the US technology sector
as exemplified by the Nasdaq 100 was up +3.37% since the beginning of the year, while
the MSCI AC World Daily TR was down 12.94% (all numbers in USD). It is not by chance
that the market capitaliza�on of the Nasdaq Composite is now larger than that of the
MSCI World Ex. US.
The extraordinary response of the US government and the FED to the coronavirus crisis
has not caused the decoupling of the financial economy from the real economy; it has
caused the decoupling of the US stock market from all other asset classes....
Sestante Dynamic Asser�ve Por�olioMonthly Investment ReportAs at 30 April 2020
Page 3 of 5
Ac�ve Management: Tac�cal Asset Alloca�on vs Investment Policy
Source: Morningstar Direct
Sestante Dynamic Asser�ve Por�olioMonthly Investment ReportAs at 30 April 2020 Page 4 of 5
Por�olio Overview
Por�olio Holdings %
Portfolio Date: 30/04/2020
Vanguard AllWorld exUS Shares ETF
iShares Australian Equity Index
iShares S&P 500 ETF
Capital Group New World (AU)
MapleBrown Abbo� Global Listed Infras
Bennelong ex20 Australian Equi�es
Realindex Aus Small CoClass A
Vanguard Interna�onal Property Secs Idx
Paradice Large Cap Fund
Schroder Australian Equity Fund PC
Vanguard Emerging Markets Shares Index
iShares Australian Bond Index
iShares Core Cash ETF
18.29
13.14
10.38
10.18
9.03
7.90
6.70
5.68
5.64
5.63
2.72
2.61
2.09
Sestante Dynamic Asser�ve Por�olio Holdings
Por�olio Date: 30/04/2020
%
Interna�onal Equi�es 41.6
Australian Equi�es 33.4
Global Infratstructure 9.0
Global Property 5.7
Unclassified 5.6
Australian Fixed Income 2.6
Other 2.1
Total 100.0
Fixed Income Credit Quality
Por�olio Date: 30/04/2020
%
AAA 74.4
AA 18.5
A 4.2
BBB 2.9
BB 0.0
B 0.0
Below B 0.0
Not Rated 0.0
Total 100.0
Equity Market Capitalisa�on
Por�olio Date: 30/04/2020
%
Giant 29.8
Large 34.9
Mid 23.6
Small 9.0
Micro 2.6
Total 100.0
Ac�ve Asset Alloca�on: Asser�ve Model Por�olio* Tac�cal Asset Alloca�on vs Investment Policy Target
Whilst overall investment policy anchors the Investment Commi�ee’s decision making, the investment process allows addi�onal flexibility to implement wide ranging tac�cal asset class �lts. The
Investment Commi�ee applies generally conserva�ve and prudent asset class �lts when it considers them appropriate. *AZ Sestante Model Por�olio.
Equity and Fixed Income Asset Alloca�on
Source: Morningstar Direct
Sestante Dynamic Asser�ve Por�olioMonthly Investment ReportAs at 30 April 2020 Page 5 of 5
Flagship Por�olio Ac�ve Asset Alloca�on Overview
Important informa�on
This document has been prepared by AZ Sestante Limited ABN 94 106 888 662 AFSL 284 442 (‘AZ Sestante’). This presenta�on has been prepared for use by dealer group researchers and research
houses only and is not for wider distribu�on. This document is not an offer of securi�es or financial products, nor is it financial product advice. As this document has been prepared without taking
account of any investors’ par�cular objec�ves, financial situa�on or needs, you should consider its appropriateness having regard to your objec�ves, financial situa�on and needs before taking any
ac�on. Past performance is not a reliable indicator of future results. Although specific informa�on has been prepared from sources believed to be reliable, we offer no guarantees as to its accuracy or
completeness. The informa�on stated, opinions expressed and es�mates given cons�tute best judgement at the �me of publica�on and are subject to change without no�ce. Consequently, although
this document is provided in good faith, it is not intended to create any legal liability on the part of any other en�ty and does not vary the terms of a relevant disclosure statement. All dollars are
Australian dollars unless otherwise specified.
Established in 2016, we specialise in designing and administering a focused range of mul�manager investment solu�ons and managed accounts for our clients. Our parent company
Azimut, Italy’s largest independent asset manager, was established in 1989 and listed on the Italian stock exchange in 2004. Azimut manages in excess of AUD55bn in assets globally
including over AUD$6bn in mul�manager solu�ons.
Andrew Davies
M + 61 418 617 418
Michael Negline
M + 61 410 586 078
About AZ Sestante
Source: Morningstar Direct