During October, markets reacted to the ongoing sovereign debt issues in Europe and the ‘rescue plan’ which was announced. Markets rallied strongly, with the S&P/ASX 300 Accumulation Index up over 7%.
Performance for the Fund in October saw the fund finishing firmly in positive territory, but below the S&P/ASX 300 Accumulation Index. However, the strategy remains on-track over the financial year to date, considerably outperforming the market.
As a result of concerns surrounding European sovereign debt and US and China growth rates, the valuations of many cyclical companies have fallen to levels last seen during the global financial crisis. We have taken this opportunity to increase some of these quality names in the strategy, such as Insurance Australia Group and Computershare.
In terms of portfolio positioning, other examples include:
- I completely sold down the position in Fosters Group post the increased bid of $5.40 per share from SAB Miller ($5.10 cash pursuant to scheme, $0.30 capital return). Given the impending transaction, FGL had held up well in a falling market so I took the opportunity to use the proceeds of the sale of this stock to purchase stocks that had fallen with the market.
- I continued to build positions in both Alumina and Oil Search. Weak global markets have provided an opportunity to buy these at attractive prices given the medium term value we see in these businesses. Our analysts assigned our highest conviction 'Rank 1' to both these companies, given the quality of their assets and management, and the valuation upside from these levels.
On a separate note, many companies offering high fully franked dividends represent good value relative to term deposits. Generally, the current environment continues to see investors favouring quality companies with strong balance sheets that are well placed to withstand any future shocks. In the current environment, our investment process holds up well and we continue to research and invest in such companies with sound management, conservative debt and recurring earnings which we believe are well placed to add value over the medium to long-term.
This information has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. The views expressed in this article are the opinions of the author at the time of writing and do not constitute a recommendation to act. Any information referenced in the article is believed to be accurate at the time of compilation and is provided by Perpetual in good faith. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor's capital.
