A staggering 19% gain by the information technology sector outweighed the impact of softer commodity prices on the materials sector and helped the Australian share market post a modest gain in February. Our model portfolios, particularly the growth portfolio with its exposure to information technology stocks, continued to outperform.
At the beginning of the year, we updated our portfolios for 2024. There are two model portfolios – an income-oriented portfolio and a growth portfolio. The objectives, methodology, construction rules and underlying economic assumptions can be referenced here: (see:
https://switzerreport.com.au/advice/model-portfolios/ )
These are long-only model portfolios, and as such, they are assumed to be fully invested at all times. They are not “actively managed”, although adjustments are made from time to time.
In this article, we look at how they have performed so far in 2024. To do so, we will start by examining how the overall market has fared.
Big winners & losers
The tables below show the performances in February of the components and industry sectors that make up the Australian share market.
Company reporting season in February resulted in significant movements in sectors and components. The top 20 stocks (as represented by the S&P/ASX 20 index) eased back, while small and mid-cap stocks tended to advance. Midcaps, as measured by the Midcap 50 index which tracks stocks ranked 51st to 100th by market capitalization, added 5.3% in the month. Smaller caps (stocks ranked 101st to 300th by market capitalization) recorded a gain of 1.7% for the month, taking the year to date return to 2.6%.
Market Component Performance
With the industry sectors, information technology soared by a staggering 19.5% Consumer discretionary stocks such as Wesfarmers and JB Hi-Fi also fared well, with the sector reporting a gain of 9.2% for the month and 11.9% so far in 2024. The largest sector by market weight, financials, which makes up 30.2% of the overall S&P/ASX 200 index, added to its 5.0% gain in January and now boasts a positive return of 8.7% in 2024.
On the other side of the ledger, the second largest sector by market weight, materials, was the major loser giving up 5.0% with iron ore and other metals trading down. Energy stocks reversed their gains in January and are now down for the year. Consumer staples was also soft losing 0.6%, dragged down by Woolworths.
Industry Sector Weighting and Performance
Portfolio Performance in 2024
The income portfolio to 29 February has returned 2.78% and the growth oriented portfolio has returned 5.18% (see tables at the end). Compared to the benchmark S&P/ASX 200 Accumulation Index (which adds back income from dividends), the income portfolio has outperformed by 0.79% and the growth portfolio by 3.19%.
Income Portfolio
The objective of the income portfolio is to deliver tax advantaged income whilst broadly tracking the S&P/ASX 200.
The income portfolio is forecast to deliver an income return of 4.6% (based on its opening value at the start of the year), franked to 78.2%. After two months (and very early into the company dividend season), it has delivered 0.56% which is franked at 93%.
The portfolio is moderately overweight financial stocks and energy and underweight the more growth oriented sectors such as information technology and health care. It is also underweight real estate (incl. property trusts). In a strong bull market, the income portfolio will typically lag the market, and in a bear market, it is likely to outperform.
In the month of February, the income portfolio returned 0.57%, moderately underperforming the benchmark index by 0.22%. Year to date, the portfolio has returned 2.78%, outperforming the benchmark index by 0.79%.
No changes to the portfolio are proposed at this point in time.
The income-biased portfolio per $100,000 invested (using prices as at the close of business on 29 February 2024) is as follows:
Growth Portfolio
The objective of the growth portfolio is to outperform the S&P/ASX 200 market over the medium term, whilst closely tracking the index.
The portfolio is moderately overweight materials, health care and information technology. It is moderately underweight financials, industrials, real estate, and utilities. Overall, the sector biases are not strong.
In the month of February, the portfolio benefited from strong performances by NextDC, Xero, WiseTech and Goodman Group and returned 3.18%, outperforming the benchmark index by 2.39%. Year to date, the portfolio has returned 5.18%, outperforming the benchmark index by 3.19%.
No changes are proposed to the portfolio at this point in time.
Our growth oriented portfolio per $100,000 invested (using prices as at the close of business on 29 February 2024) is as follows:
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
