InvestSMART Portfolios Monthly Update - April 2020

As most InvestSMART investors would know, we are long-term, diversified, total return, low-cost managers. All our research, data and historical analysis point to these mandates being a strategy that can stand the test of (investment) time.

If you don’t believe us have a look at the performance of all markets post every major event crises of the past 120 years. The Great Depression, the recessions of the 60’s 70’s and 90’s, the Global Financial Crisis, the Asian Financial Crisis, the dot.com bubble etc. etc. The list is vast, and all these events have presented markets and investors with an array of risks and differing economic and social upheavals from mass unemployment to credit crunches, ballooning government debt to unconventional monetary policy, housing collapses to oil price crunches.

We highlight these headline-grabbing, short-term events, because that is what they are – events.

They are perfect examples of why we don’t believe or indeed get involved with ‘timing’ markets or ‘short-termism’. Why? Because these so called ‘strategies’ never work for investors.

Think about it. If you had believed that global and domestic markets were going to plummet in the post-GFC world, and many had, you would’ve had to wait for the longest bull market in US and Australian history (11 years) before being proven right, and it needed a once in a generation pandemic in COVID-19 to cause an end to this bull market.

Then there are those that believe the March 23 low is not the bottom and believe you can ‘time’ the market when a possible second or third wave of sell-downs come, and that may be the case. But remember, people believed there would be second, third, fourth even fifth sell-down waves in June 2009 not realising that the GFC was indeed over, and that the market was about to rally 55 per cent in the following 18 months. These ‘wave-riders’ kept waiting to ‘time’ the bottom and instead got left floating in a low cash return environment.

What we know is that since May 1, 2000 to April 30, 2020 the ASX 200 on a capital basis is up over 78 per cent and on a total return basis it’s over 316 per cent. Those figures take in the events of September 11, the bear market of 2002, the GFC, the ‘eurocrisis’ of 2011-12, the China ‘hard-landing’ issues of 2015 and 2016 and now the COVID-19 pandemic of 2020.

COVID-19 is presenting as a fairly stereotypical event risk even with the ‘unprecedented’ crashes in economic data caused by governments locking down their respective economies. This point is highlighted by what transpired in April trading, it should also highlight why timing markets and trying to think short-term will cost you every time.

April saw some of the worst aspects of the COVID-19 pandemic. Nations have lost thousands of citizens to the virus, we have mass unemployment, and economies have been ‘crashed’ to save domestic health systems. If we look at specific market events, the oil price turning ‘negative’ for the first time in history, debt markets are being tapped by governments looking to support their economies with debt at unprecedented rates, and the purchasing of goods and services are contracting at up to 25 times faster than they were at the peak of the GFC in some economies.

These are all things one might assume would lead to negative returns in most, if not all asset classes.

Yet, the S&P 500 had its best month since 1987, up 12.7 per cent. The ASX 200 logged its best month since forming in 2000 and was the best month for the broader index since 1988. In fact, since the March 23 low, the ASX to the close of business on April 30 was up 25 per cent. This is where it gets weirder, energy was the best performing sector in the ASX adding 25 per cent in April, this is the same month that saw oil prices going negative, demand collapsing with the world still under travel bans and production shutdowns to reduce losses. Up is down, down is up, and April trading shows that you just can’t pick markets over a very short period of time.

You might not be able to ‘time’ the market by entering and exiting your positions, but you can take advantage of a lower price to lower your average investment price. This event will pass, markets will not only stabilise but will rise again and economies will bounce back. Being positioned for that scenario is core to any long-term investment strategy.

Performance of the capped fee portfolios in the month of April

Diversified Portfolios

Conservative

• As equities surged, the portfolio increased by 2.90% after fees in April which was 0.99% higher than peer performance of 1.91%.
• All aspects of the portfolio attributed to performance with Domestic Equities ( 0.95%), International Equities ( 0.74%) and Property ( 0.73%) the biggest contributors.
• The yield on the Conservative Portfolio at the close of April was 2.67%.

Balanced

• As equities surged, the portfolio increased by 4.13% after fees in April which was 0.91% higher than peer performance of 3.22%.
• All aspects of the portfolio attributed to performance with Domestic Equities ( 1.82%), International Equities ( 1.36%) and Property ( 0.63%) the biggest contributors.
• The yield on the Balanced Portfolio at the close of April was 3.13%.

Growth

• As equities surged, the portfolio increased by 5.35% after fees in April which was 1.12% higher than peer performance of 4.23%.
• All aspects of the portfolio attributed to performance with Domestic Equities ( 2.32%), International Equities ( 2.02%) and Property ( 0.74%) the biggest contributors.
• The yield on the Growth Portfolio at the close of April was 3.50%.

High Growth

• As equities surged, the portfolio increased by 6.74% after fees in April which was 1.14% higher than peer performance of 5.60%.
• All aspects of the portfolio attributed to performance with Domestic Equities ( 3.12%), International Equities ( 2.92%) and Property ( 0.58%) the biggest contributors.
• The yield on the Growth Portfolio at the close of April was 3.93%.

Satellite Portfolios

International Equities

• As equities surged, the portfolio increased by 5.72% after fees in April which was 2.40% higher than peer performance of 3.32%.
• S&P 500 (IVV) attributed 2.52%, European Equities (VEQ) attributed 0.41% while the global holding VGS detracted 2.59%.
• All facets of the portfolio contributed to performance

Interest Income

• Increased by 0.21% after fees in April which was even with peer performance.
• Treasuries attributed 0.21%, corporate fixed interest attributed 0.04% while floating rate notes were flat.
• All facets of the portfolio contributed to performance in April.
• The yield on the Interest Income Portfolio sits at 2.07%.

Property and Infrastructure

• The portfolio increased by 8.33% after fees in April.
• Domestic Property attributed 4.08%, International Property attributed 0.75%, TCL attributed 1.61% while International Infrastructure attributed 1.66%.
• The yield on the Property and Infrastructure portfolio sits at 4.91%.

Hybrid Income

• The total portfolio return was 3.61% for the month including franking credits. The estimated running yield is over 5.0%, and estimated yield to call/maturity is 6.50% including franking credits.

• The total portfolio return was -3.64% and -2.65% for the quarter and 12-month periods respectively. Since inception the total portfolio return is 2.77% including franking credits, which is -1.58% under its return objective of the RBA Cash rate plus 3%.

• The trading prices of ASX-listed hybrids increased substantially during April as buyers returned and margins fell. This resulted from less perceived risk around dividends and franking on hybrids.

• The 3 month BBSW rate fell during April, lowering the yields on floating rate hybrids and notes.

• There was one security in the portfolio trading ex-distribution, NABHA, with payment expected in May.

• AXLHA is expected to pay the liquidators final distribution to Noteholders in May. It is expected the amount will be approximately $0.33 per Note

• At end of April the portfolio had a 4.56% allocation to cash.

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