An investor with the Switzer Dividend Growth Fund (SWTZ) gave me some feedback that I felt needed to be responded to in a balanced realistic way. This is what he said: “I’ve been an investor in the Switzer Dividend Growth Fund (SWTZ) since soon after its inception in 2017 and wonder why it has seen such appalling growth over all those years. At the time of writing, it is $2.41, which is below the issue price. Even the distributions are well below what can be achieved on many dividend stocks. I look forward to hearing from you”.
Let’s look at the history of SWTZ (to 31 May 2024). This table sums it up:
Note the Benchmark is the S&P/ASX 100 Accumulation Index. Prior to 1 April 2024, the benchmark was the S&P/ASX 200 Accumulation Index. I’ve always argued that these are unfair indexes to compare to as they’re growth indexes, with a secondary commitment to chasing income. SWTZ and other income funds chase income first and play for some growth.
By the way, the price of diversity and the safety of income is that an investor gives up growth returns. Given SWTZ has returned 5.19% since inception (and you’d also add in franking credits of at least 1% for many investors takes the total return to around 6.2%), that has been a good return for income seekers.
The fund was created when term deposits were around 1% and it also followed an interview with former Federal Minister, Graham Richardson on my former Sky Business Channel TV show where he said he had only five stocks in his SMSF — the four banks and Telstra.
This was before the Hayne Royal Commission, which led to a big fall in bank stock prices.
SWITZ has around 30-35 stocks and has sought to deliver at least a 5% return, which is often seen as a safer, attractive alternative to stocks.
The SWTZ website shows what happened to $10,000
between February 2017 and May this year.
It shows that in April this year, that $10,000 became $15,000, which is a 50% gain over 7 and quarter years.
That’s about 5.75% a year.
What that chart also shows is how dividend funds, such as SWTZ, are is great rebounders after sell-offs. Note, how the unit price quickly heads up after a rough time for stocks.
In fact, funds like SWTZ are great to buy after big market slides.
SWTZ went to $1.90 in March 2020 with the Coronavirus crash. However, by April 2022, its issue price hit $2.76. The capital gain for a courageous investor then would’ve been close to 45% along with two years of around 5% per annum for income.
That means a relatively safe investment bought in market scary times netted around 27.5% per annum between April 2020 and April 2022.
On the current unit price of SWITZ, it must be remembered when any share goes ex-dividend, the share price tends to fall to match the payment.
As the SWTZ or Associate Global Partners website recently told us: “On 26 June 2024, AGP Investment Management Limited, as responsible entity for the Switzer Dividend Growth Fund (Quoted Managed Fund) (SWTZ or the Fund) announced that the Fund will pay an estimated distribution of $0.229356 per unit for the month ending 30 June 2024. It is estimated that this distribution will be unfranked.”
Furthermore, AGPL added: “This estimated distribution amount was significantly larger than previous periods mostly due to capital gains which came from the rebalancing of the portfolio following change in the management of SWTZ from Blackmore Capital to Vertium Asset Management which was effective 28 March 2024. The capital gains are distributed to investors as at Financial Year End.”
The website gave this additional explanation about the Estimated Distributions and Effect on SWTZ Trading Price: “When the June 2024 distribution was announced, SWTZ became ex-dividend on 1 July 2024. Ex-dividend is a signal to the market that any new unitholders can’t access that distribution just announced. The trading price changed on the ex-date to reflect the estimated amount that will be paid out to investors as distributions. As the distribution was large as noted previously, and it is paid out of the Fund itself, the change in the trading price is reflective of the total estimated number of distributions payable to all investors.”
Finally, I have higher hopes for SWTZ in coming years as I suspect markets will benefit from lower interest rates, and its new fund manager, Jason The, founder of Vertium Asset Management has a good history.
He recently showed this on my Switzer Investing TV to underline how his strategy has performed since 2021.
Of course, history is no 100% guide for reliability and Blackmore Capital has a good record as well, but I do like Jason Teh’s approach, which has beaten the ASX300 for income from May 2021 to December 2023.
One final point needs to be made. If my SWTZ investor had played term deposits rather than SWTZ, have a look at the returns he would’ve endured. In February 2017, the rate was 2%. They progressively fell below that until March 2023, when they got to 2.6%.
Term deposit rates
Of course, term deposits are safer, so they pay less. But good income funds go up and down in value but tend to be more rewarding than term deposits.
I hope that has given my SWTZ investor some clarity on his experience with the fund.
Important informati on: 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. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
