Last Friday marked the end of the financial year and a strong performance by the Australian share market. For the year, the Australian share market recorded a gain of 9.7%, however when dividends are included, the total return was 14.8%.
While calendar year 2023 hasn’t been quite as strong, the market is still up by 2.3% in price terms and 4.5% when dividends are included. In June, the market recovered from losses in May to record a return (including dividends) of 1.8%.
Our model portfolios enjoyed positive returns in June and are in the black for 2023. The growth portfolio continues to outperform the benchmark index, while the income portfolio, with an overweight position in financial stocks and no exposure to technology stocks, is lagging the benchmark.
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/our-portfolios-for-2023/
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 2023. To do so, we will start by examining how the overall market has fared.
IT stocks lead as healthcare and real estate come under pressure.
The tables below show the performances in June and for the calendar year of the components and industry sectors that make up the Australian share market.
In June, the top 20 stocks, which are dominated by the major banks and big miners, moderately outperformed the broader market, adding 2.3%. In comparison, small caps, which are stocks ranked 101st to 300th by market capitalization, were flat for the month and year to date, are underperforming the market with a return of 1.3%.
With the industry sectors, information technology is the standout sector. Following on the lead from the USA, the sector has posted a gain of 30.9% in 2023 due to the performances of industry leaders such as WiseTech, NextDC and Xero.
The largest sector, financials, is a relative laggard. Making up 27.9% by weighting of the broader S&P/ASX 200, the sector recovered in June to add 3.1% but for the calendar year, is only up by 0.4%. The second largest sector, materials, which includes the big miners such as BHP and Rio, also posted a solid return in June of 4.8%.
The healthcare sector lost 6.6% in June and for 2023, is only moderately in the “black” with a return of 0.4%. June’s performance was largely on the back of a disappointing trading outlook by CSL, but other stocks are also largely flat.
The consumer facing sectors – consumer discretionary, consumer services and communication services – are enjoying robust gains in calendar 2023.
Portfolio Performance in 2023
The income portfolio to 30 June has returned 2.38% and the growth-oriented portfolio has returned 5.86% (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 underperformed by 2.13% and the growth portfolio has outperformed by 1.35%.
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 5.0% (based on its opening value at the start of the year), franked to 80.3%. With dividends declared during the February reporting season marginally better than forecast, it is on track to meet this. Year to date (six months to end June), the income return is 2.55% franked to 79.1%.
In the month of June, the income portfolio returned 1.02%. This underperformed compared to the benchmark index by approximately 0.74%. For the year, it has returned 2.38%, which is 2.13% behind the index.
The portfolio is moderately overweight financial stocks and underweight the more growth-oriented sectors such as information technology and health care. In a strong bull market, the income portfolio will typically lag the market, and in a bear market, it is likely to outperform.
No changes to the portfolio are proposed at this point in time. Bega Cheese is on the radar, although our sense on this is that most of the damage has been done and it is now too late to sell.
The income biased portfolio per $100,000 invested (using prices as at the close of business on 30 June 2023) 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.
In June, the growth portfolio returned 2.33%, outperforming the benchmark index by 0.57%. Year to date, it has returned 5.86%, outperforming the benchmark by 1.35%. (Note: performance does not include potential participation in NextDC 1:8 non renounceable entitlement issue at $10.80 per share).
The portfolio is moderately overweight financials, health care and information technology. It is moderately underweight industrials, real estate and utilities. Overall, the sector biases are not strong.
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 30 June 2023) is as follows:
* Performance does not include participation in 1:8 non-renounceable issue at $10.80 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.
