Led by a bounce back in commodity prices and a positive lead from wall Street, the Australian share market made record highs in September. Our model portfolios continued to outperform, with the growth portfolio boosted by gains in the large miners and tech 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.
Materials and small caps bounce back
The tables below show the performances in September and year to date of the components and industry sectors that make up the Australian share market.
Smaller caps rose strongly in September, with the Small Ordinaries index (which measures stocks ranked from 101st to 300th by market capitalization) adding 5.1% in the month. This was helped by an increase in commodity prices, and the expectation of lower interest rates ahead.
The top end of the market largely tracked the overall market, although for the year, the performance at 10.7% is marginally behind the broader market. Midcaps are doing best, with the Midcap 50 index up 12.9% in 2024.
The materials sector bounced back strongly, surging by 11.1% in the month. The second largest sector on the ASX with market weight of 19.5%, it is still in the red for 2024 with a loss of 3.8%.
The largest sector by market weight, financials, which makes up 32.7% of the overall S&P/ASX 200 index, retreated as the month came to a close, finishing with a small loss 0.3%. For the year, it is up 25.9%.
Information technology continued to star, with gains from leaders such as WiseTech and Xero driving a gain of 6.6% in the month. It is the best performing sector in 2024 with a gain of 47.4%.
Energy continued to suffer in September and is the worst performing sector in 2024 with a loss of 11.2%.
Portfolio Performance in 2024
The income portfolio to 27 September has returned 11.85% and the growth oriented portfolio has returned 18.42% (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 0.30% and the growth portfolio has outperformed by 6.87%.
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 nine months, it has delivered 3.81%, which is franked to 82.9%.
Following some changes at the end of June, the portfolio is back to index weight on financials. In August, exposure to consumer discretionary was reduced. The portfolio is now moderately overweight the defensive sectors, 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 September, the income portfolio returned 1.67%, underperforming the benchmark index by 0.58%. Year to date, the portfolio has returned 11.85%, outperforming the benchmark index by 0.30%.
No changes are under consideration at this point in time.
The income biased portfolio per $100,000 invested (using prices as at the close of business on 27 September 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 and utilities. Overall, the sector biases are not strong.
In the month of September, the portfolio returned 3.14%, outperforming the benchmark index by 0.89%. Year to date, the portfolio has returned 18.42%, outperforming the benchmark index by 6.87%.
At the end of August, we reduced the exposure to consumer discretionary by selling the holding in JB Hi-Fi, and invested 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 27 September 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.
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.
