Taking the lead from the USA, the Australian sharemarket fell sharply in early August before recovering to finish flat for the month, just short of an all-time high. Our model portfolios continued to outperform, boosted by gains in banks and consumer discretionary stocks offsetting falls in resources. 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.
Information technology and financials lead
The tables below show the performances in Augusth July and year to date of the components and industry sectors that make up the Australian share market.
In August, midcaps did relatively better than the large caps or small caps. The Midcap 50 index, which measures stocks ranked 51st to 100th by market capitalization, added 2.0% in August compared to the broader markets total return of 0.5%.
Smaller caps continue to lag, with the Small Ordinaries index (which measures stocks ranked from 101st to 300th by market capitalization) shedding 2% in August and at 4.2% for the year, well behind the overall market.
With the industry sectors, information technology remains the best performing sector in the market in 2024 with a return of 38.3%. Led by WiseTech, the sector returned 7.9% in August.
With the market worried about commodity prices, the market continued to invest in the major banks. The largest sector by market weight, financials, which makes up 32.7% of the overall S&P/ASX 200 index, posted a return of 1.9% in August. For the year, it is up 26.2%.
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 13.4%. It fell in August by 1.9% as commodities (particularly iron ore) eased in price.
Communication services performed strongly in August (due to stocks such as Telstra and CAR Group), while industrials added 3.9% on the back of gains in stocks such as Brambles, Transurban and Qantas.
Portfolio Performance in 2024
The income portfolio to 30 August has returned 10.01% and the growth oriented portfolio has returned 14.82% (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 0.91% and the growth portfolio has outperformed by 5.72%.
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 eight months, it has delivered 2.89% which is franked at 81.8%.
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 August, the income portfolio returned 0.91%, marginally outperforming the benchmark index by 0.53%. Year to date, the portfolio has returned 10.01%, outperforming the benchmark index by 0.91%.
We are proposing to realise the profit on JB Hi-Fi. One of our favourite stocks, this stock has done exceptionally well in 2024 and is now trading on very high multiples. The cash will be reinvested in additional shares in Telstra and APA. 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 30 August 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. Purchased after sale of part CBA and NAB.
⁴ $2,500 of JB Hi-Fi, original purchase price of $53.03, sold 30/8/24 at $79.57 to realise profit of $1,251. Re-invested in $2,000 Telstra and $1,751 APA.
⁵ Purchase date and price is 30/8/24. Purchased after sale of JB Hi-Fi.
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 August, the portfolio returned 2.23%, outperforming the benchmark index by 1.76%. Year to date, the portfolio has returned 14.82%, outperforming the benchmark index by 5.72%.
We are proposing to realise the profit on JB Hi-Fi. One of our favourite stocks, this stock has done exceptionally well in 2024 and is now trading on very high multiples. The cash will be reinvested in additional shares in CAR Group and Goodman Group. No further changes to the portfolio are proposed at this point in time.
Our growth oriented portfolio per $100,000 invested (using prices as at the close of business on 30 August 2024) is as follows:
¹ Portfolio was not able to participate in NextDC 1 for 6 entitlement issue at $15.40 per share.
² Purchase date and price is 30/8/24. Purchased following sale of JB Hi-Fi.
³ $2,500 of JB Hi-Fi, original purchase price of $53.03, sold 30/8/24 at $79.57 to realise profit of $1,251. Re-invested in $1,751 CAR Group and $2,000 of Goodman Group.
