Despite a positive lead from the USA, the Australian share market struggled for direction in May before a last day rally led it to post a small gain for the month. In choppy trading, our mode portfolios rose, with the growth portfolio continuing to strongly outperform the benchmark index.
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.
Top 20 stocks outperform in May
The tables below show the performances in May of the components and industry sectors that make up the Australian share market.
Reversing the trend of the past few months, the “top 20” stocks outperformed in May due to a rally in BHP (following the abandonment of its takeover of Anglo American) and continued strong performance by the major banks, which went ‘ex-dividend’ in the month. Year to date, however, the “top 20” stocks lag the broader market by 0.8%.
Smaller cap stocks, as measured by the Small Ordinaries Index which tracks stocks ranked 101st to 300th by market capitalization, have recorded a gain in 2024 of 4.2%, 1.0% higher than the broad based S&P/ASX 200 index. Midcaps, as measured by the Midcap 50 index which tracks stocks ranked 51st to 100th by market capitalization, are up 4.9% over the first five months.
Market Component Performance
With the industry sectors, the consumer facing sectors (discretionary, staples and communication services) lost ground in May. Information technology was again the best performing sector, recording a gain for the month of 5.5%. For the first five months of 2024, the sector has recorded a return of 26.1%.
The largest sector by market weight, financials, which makes up 30.2% of the overall S&P/ASX 200 index, posted a return of 2.6% in May and for the year is up an impressive 10.9%. On the other side of the ledger, the second largest sector by market weight, materials, is one of only 4 sectors in the red for 2024 with a loss of 5.6%.
Industry Sector Weighting and Performance
Portfolio Performance in 2024
The income portfolio to 31 May has returned 3.03% and the growth oriented portfolio has returned 7.50% (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 moderately underperformed by 0.14% and the growth portfolio has outperformed by 4.33%.
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 five months, it has delivered 2.11% which is franked at 87.1%. Distributions from APA and Transurban in June will complete the first half payments.
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 May, the income portfolio returned 0.47%, moderately underperforming the benchmark index by 0.45%. Year to date, the portfolio has returned 3.03%, moderately underperforming the benchmark index by 0.14%.
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 31 May 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 May, the portfolio returned 1.70%, outperforming the benchmark index by 0.78%. Year to date, the portfolio has returned 7.50%, outperforming the benchmark index by 4.33%.
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 May 2024) is as follows:
¹ Portfolio was not able to participate in NextDC 1 for 6 entitlement issue at $15.40 per share.
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.
