As I didn’t do a 6 month portfolio review I’ve decided to do
something a little different and do a 9 month review (of my performance) instead.
My Personal Account (PA) which I refer to as my “Growth
Value Fund” posted returns of 6.3% after transaction costs for the 9 months (to
date). This takes my annualised return since inception to 12.3% p.a. (post all costs - which are quite high given my transaction costs as a % of transaction value is high. Performance before this cost is about 15%). Over the
most recent 9 months, major detractors included WDS Limited (ASX:WDS), Slater & Gordon (ASX:SGH) and Arrium (ASX:ARI). I have sold out of all of these positions except
for WDS. Although these stocks fell significantly, the impact was subdued due
to their small weightings – I held small positions relative to my other, high
conviction calls. On the other hand, major contributors were Sirtex Medical (ASX:SRX), RCG Corporation (ASX:RCG) and Molopo Energy (ASX:MPO). These three
stocks have done the majority of the lifting in both performance and dollar
gains. I sold out of Molopo Energy realising a c. 26% capital gain (104% annualised).
Over the most recent quarter I added significantly to my Mineral Resources (ASX:MIN) holding and
bought into MNF Group (ASX:MNF) which
is now my largest holding. While both are only up c. 2-4%, the dollar gains are
substantial as they are big holdings of mine (about 50% of my portfolio in fact
– a serious level of concentration). People question why I have bought into
Mineral Resources and I’d like to offer some insight. Many have ditched the company
and there has been immense short selling pressure. My best guess would be
because of the impact of the iron price on the business. However, what many don’t
talk about is its extremely high quality iron ore crushing business which
operates at a 29% EBIT margin and has
a high level of contractual (recurring) revenue. Furthermore, the revenues are
generated on a volume basis, and so are not as responsive to price as many
believe – the majors are still pushing volume through via MIN.Yes, the earnings have re based downward, but the share price depreciation has been too aggressive and not justifiable in my opinion.
Brief Market Review
As financial markets continue their wild gyrations, the most
recent quarter was not easy with the MSCI AC World ex-Australia falling about
9.2% (USD) but this was offset by changes in the Aussie dollar. Growth concerns over China and the rising expectations
of the US interest rate hike were key themes shaking markets.
Domestically, the ASX200 Accumulation Index fell 6.6% in the
most recent quarter – mostly driven by a sell-off in the banks and materials. More specifically, the resource sector came
under immense pressure as the iron ore price and oil price continue to set new
lows. On the other hand, investors rewarded the industrials sector.
Brief Market Outlook
The Australian economy continues to shift away from the
mining sector. With the AUD coming off we have seen tourism and services reduce
the unemployment rates for these sectors. With the RBA cash rate at 2.00%, it remains
expansionary. There is also a growing concern over the Australian GDP growth
rate in the medium term. In one of my recent posts titled “General Commentary” I
talked about how each RBA rate cut is having less of an impact on investment. I’d
like to add to this. What’s happening is that with each RBA rate cut, you’re
seeing more money pour into equity markets, driving up prices. Companies are
using the lower rates to pay higher dividends to attract this new money,
driving their share prices higher at the cost of investment into the future.
This, I believe is a serious issue which needs a solution. It has come to my
attention that many of the beloved blue-chips are operating at unsustainable
payout ratios which I believe will come under threat.
In terms of the market outlook over the short term I cannot
add much value here as quite frankly I have no idea. However, while many are focused on the daily moves of markets, I am confident that the ASX will
continue to grind up over time as the economy continues to grow.
I will attempt a more elaborate post at my yearly review covering
most of the year which may see some overlap with the material posted in this
review.
I hope you all enjoy your Christmas & New Year.
