Often the bogey month for shares, October, witnessed the ASX powering ahead by 4.0%, taking price gains since the start of January to 16.7%. In somewhat of a reversal of the previous couple of months, the “yield” sectors (financials, telecommunications) led the market higher.
Our income and growth portfolios continued to perform well and better than the ASX, increasing their relative outperformance to the benchmark indices. We started our portfolios as a guide for constructing your own portfolios. You can read more about our process here [1].
Performance
The income-oriented portfolio to 31 October is up by 24.31% and the growth-oriented portfolio is up by 25.99% (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 by 3.4% and the growth oriented portfolio has outperformed by 5.1%.
All sectors up in October
All the major sectors increased in October, ranging from 0.2% for the energy sector to 5.9% for financials. In somewhat of a reversal of August and September, the cyclical sectors, such as industrials and consumer discretionary, lagged the market, as the Aussie dollar tracked higher to 0.95US. With interest rates now seemingly on hold, the yield sectors (financials and telecommunications) attracted renewed investor interest.
On a year-to-date basis, the materials sector is still down 5.2%, while investors, who are overweight financials, are the major winners.
Income portfolio
The income portfolio is overweight financials, consumer staples and telco, and underweight materials. It remains within the portfolio sector rules (see above) with financials representing 49.8% of the portfolio by market value on 31 October (effectively overweight with 1.28 times the sector weight), and materials 14.2% of the portfolio (effectively underweight at 0.82 times the sector weight).
For income, the portfolio has so far returned 4.2%, franked to 94.1%. With three of the major banks yet to pay their final dividend, the portfolio should, for the year, marginally exceed the forecast dividend yield of 5.23% per annum. Details of the portfolio and its performance are listed below.
Income Portfolio
Growth-oriented portfolio
The growth-oriented portfolio is overweight stocks in the materials, energy and healthcare sectors, underweight financials and consumer staples, and broadly index weight the other sectors. Stock selection in the financials (strong bias towards NAB and the selection of a regional in BOQ), in the industrials (with Toll and Brambles), and in consumer discretionary with Crown, has offset the underperformance of the material sector stocks.
In keeping with our view that the “pricing gap” between NAB and CBA [2] has closed, and that the stellar run of the regional banks is coming to an end (which means that better risk adjusted value is to be found again now with the major banks), we have made some changes (effective 31 October) to our financial stocks:
- Sold our Bank of Queensland (BOQ) holding (up 64% this calendar year), and re-invested these funds into Commonwealth Bank;
- Sold 25% of our NAB holding – and reinvested these funds into Westpac shares.
The net effect of these transactions is to institute a bias within financials towards the major banks, and then take a broadly neutral (index weight) position within the four banks.
The portfolio from 31 October is:
Growth Oriented Portfolio
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.Also in the Switzer Super Report:
- Peter Switzer: This time really is different [3]
- James Dunn: Tabcorp and Tatts – a sure thing tomorrow [4]
- Gary Stone: Short-term All Ords retracement, means long-term gain [5]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [6]
- Penny Pryor: Spring fever in the property market [7]