Boosted by a better than expected inflation outcome and falling bond yields, the Australian sharemarket recorded a solid gain of over 4% in July, closing at a record high. Consumer facing sectors and interest rate sensitive stocks led the gains. Our model portfolios continued to outperform, boosted by gains in banks and consumer discretionary stocks. Year to date, both portfolios are ahead in performance terms relative to the benchmark S&P/ASX 200 index.
At the beginning of the year, we updated our portfolios for 2024 – 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.
Consumer facing and interest rate sensitive sectors lead
The tables below show the performances in July and year to date of the components and industry sectors that make up the Australian share market.
In July, the ‘top 20 stocks’ continued to outperform due mainly to gains by the big banks. Year to date, larger cap stocks have done moderately better than mid caps and small caps, with a return of 9.0%. The index that measures stocks ranked 101st to 300th by market capitalization, the Small Ordinaries Index, is up a more modest 6.3% in comparison.
Market Component Performance
With the industry sectors, information technology remains the best performing sector in the market in 2024 with a return of 28.2%. In July, it added just 0.2%.
July, however, was about inflation expectations and interest rates, and this led to strong gains for the consumer facing sectors and interest rate sensitive stocks. The consumer discretionary sector recorded a gain of 9.1% in July, with communication services adding 5.3% and real estate 6.7%.
The largest sector by market weight, financials, which makes up 32.3% of the overall S&P/ASX 200 index, also soared posting a return of 6.3% in July. For the year, it is up 23.9%.
On the other side of the ledger, the second largest sector by market weight, materials, is one of only two sectors in the red for 2024 with a loss of 11.8%. It fell in July by 0.1% as metal commodities continued to eases in price.
On the back of gains in leading stocks such as CSL, the health care sector added 4.7% in July and is now up 10.1% this year.
Industry Sector Weighting and Performance
Portfolio Performance in 2024
The income portfolio to 31 July has returned 9.02% and the growth oriented portfolio has returned 12.31% (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 the index by 0.43% and the growth portfolio has outperformed by 3.72%.
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 seven months, it has delivered 2.35% which is franked at 77.7%.
Following some changes at the end of June, the portfolio is back to index weight on financials. It is moderately overweight the consumer facing sectors 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 July, the income portfolio returned 4.00%, marginally underperforming the benchmark index by 0.19%. Year to date, the portfolio has returned 9.02%, outperforming the benchmark index by 0.43%.
No further 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 31 July 2024) is as follows:
¹ $2,000 of CBA, original purchase price of $111.80, sold 28/6/24 at $127.27 to realise profit of $279. Reinvested in Transurban and BHP.
² $2,000 of NAB, original purchase price $30.70, sold 28/6/24 at $36.23 to realise profit of $360. Reinvested in Transurban and BHP.
³ Purchase date is 28/6/24
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 July, the portfolio returned 3.37%, underperforming the benchmark index by 0.82%. Year to date, the portfolio has returned 12.31%, outperforming the benchmark index by 3.72%.
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 31 July 2024) is as follows:
¹ Portfolio was not able to participate in NextDC 1 for 6 entitlement issue at $15.40 per share.
