The Australian share market followed Wall Street in November to an all-time high and delivered a return of 3.8%. Our model portfolios followed suit to post strong gains The growth portfolio continues to strongly outperform the benchmark S&P/ASX 200 index, while the income portfolio has fallen behind due to its underweight position in IT stocks and overweight position in material stocks.
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.
Midcaps, financials and information technology lead the market
The tables below show the performances in November and year-to-date of the components and industry sectors that make up the Australian share market.
Midcaps, as measured by the Midcap 50 index (an index that tracks stocks ranked 51st to 100th by size of market capitalization) generated a return of 5.7% in the month and at 16.8% for the year, are outperforming the broader market index (the S&P/ASX 200), which has returned 15.1%. The top 20 stocks are marginally underperforming (14.1% for the year vs 15.1%), while small caps (stocks ranked 101 to 300th by market capitalisation) are lagging at 11.8%.
In the industry sectors, information technology continues to star. A return of 10.5% in November took its year-to-date return (since January 1) to a staggering 56.8%.
Led by CBA, the major banks continued to rise. The largest sector by market weight on the ASX with a weighting of 34.1%, the sector added 7% in November and has returned 39.5% in 2024. The second largest sector, materials, which has a weighting of 19.1%, finished with a loss of 2.6% in November (despite a rally in the gold price). Year-to-date, it is down 9.7%. Energy is the other notable laggard in 2024.
Nine out of the 11 industry sectors produced positive returns in November. The tiny utilities sector came in second with a return of 9.1%.
Portfolio Performance in 2024
The income portfolio to 29 November has returned 12.19% and the growth-oriented portfolio has returned 21.33% (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 the index by 2.88% and the growth portfolio has outperformed the index by 6.26%.
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 eleven months, it has delivered 4.32%, which is franked to 81.7%. When the final distributions from APA and Transurban are received, it should deliver a full year return of around 4.67%, franked to 76%.
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 November, the income portfolio returned 2.23%, underperforming the benchmark index by 1.56%. Year-to-date, the portfolio has returned 12.19%, underperforming the benchmark index by 2.88%.
No changes are under consideration at this point in time, although we are closely monitoring the performance of Endeavour Drinks and Ramsay.
The income-biased portfolio per $100,000 invested (using prices as at the close of business on 29 November 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 November, the portfolio returned 3.34%, underperforming the benchmark index by 0.45%. Year to date, the portfolio has returned 21.33%, outperforming the benchmark index by 6.26%.
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 29 November 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.
