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Phone: 1300 201 087
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PacReef Income Today Portfolio
December 2015 Quarterly Review
The PacReef Income Today Portfolio returned 8.82% compared to the benchmark (ALL ORDINARIES (TR)) return of 6.62% giving a relative performance of 2.20% for the period.
| Return % | One Month | Three Month | Six Month | One Year | Three Year | Since |
| Portfolio | 4.35 | 8.82 | 9.00 | N/A | N/A | 1.74 |
| Benchmark | 2.65 | 6.62 | 0.45 | 3.78 | 9.26 | -6.90 |
| Relative Performance | 1.70 | 2.20 | 8.55 | N/A | N/A | 8.64 |
The table above sets out the investment performance returns (AFTER investment management fees, but BEFORE administration fees, performance based fees and taxes) for the Portfolio. The performance returns have been calculated on a daily basis taking into account brokerage costs, and are accumulated for the period shown. Returns are shown as annualised if the period is over 1 year, or as total returns otherwise.
The performance numbers above do not take into account the potential benefit of the Franking Credits generated by the portfolio. PacReef Asset Management has estimated that if Franking Credits are factored in the PacReef Income Today Portfolio then the portfolio would have potentially returned 4.42% during the month of December, 9.19% during the December quarter, 10.27% during the half-year and 3.34% since inception.
This gives a relative performance of 1.77%, 2.57%, 9.82% and 10.24% respectively for the month, quarter, half-year and since inception.
Following on from the Index’s -5.79% return for the September quarter the Australian share market rebounded strongly recording a positive return of 6.62%. Whilst this return is certainly healthy it came almost entirely during the final two weeks of December. In fact, as at the 15th December the Index was down by more than 1% for the quarter and our portfolio was showing a breakeven return.
During the December quarter we undertook a number of changes to the portfolio. Most notable of these was our decision to completely exit two of Australia’s Big 4 Banks – ANZ & NAB. These stocks were exited after they had gone ex-Dividend. At the same time we increased our holdings in Commonwealth Bank and Westpac.
We also completely exited our holding in Computershare and reduced our weighting in Tassal Group following strong growth in its share price. In addition we also took some profits by selling shares in The Reject Shop following their increase from under $6 to almost $ 12 between early July and mid-November. Despite this profit taking, the share price growth actually resulted in an increased weighting to The Reject Shop during the quarter.
Our weightings in Greencross, NAB Income Securities and Thorn Group also increased during the quarter.
Overall we had a very good quarter with no security in the portfolio showing a total return worse than -1%. However, 8 of the securities we held recorded Total Returns for the quarter in excess of 10%. These were Automotive Holdings Group (14%), ASX Limited (12%), Commonwealth Bank (18%), Cochlear (13%), CSL (17%), Event Hospitality & Entertainment (30%), InvoCare (11%), The Reject Shop (30%) and Westpac (32%).
The primary objective of the PacReef Income Today Portfolio is to deliver a tax effective income stream to investors and we believe that it is achieving this objective. The portfolio has returned a Gross Income of 3.16% for the first half of the current Financial Year.
Other points of interest during the quarter include:
Greencross (GXL): Private Equity firm TPG Holdings attempted to raid the company by seeking to purchase 14.9% of the company on market at $5.75 per share. This failed miserably with their shareholding by late December being less than 7%.
Event Hospitality (EVT): During the quarter Amalgamated Holdings Limited (AHD) shareholders voted to change the name of the company to Event Hospitality & Entertainment Limited (EVT) to better reflect the businesses operations.
Spark Infrastructure (SKI): Spark was part of the consortium that was successful acquired a 99-year lease of the TransGrid assets from the NSW Government for $10.25B. Spark has a 15.01% stake in this consortium and partially funded its equity contribution of $734.4M via a 5 for 34 Pro-rate Entitlement Offer. The PacReef Income Today Portfolio took up this offer in full.
Westpac Banking Corp (WBC): Westpac undertook a Renounceable Entitlement Offer to raise $3.5B. Eligible shareholders could subscribe for 1 new share for every 23 held. The PacReef Income Today Portfolio took up this offer in full.
Commonwealth Bank (CBA): Commonwealth Bank undertook a Renounceable Entitlement Offer to raise $5.1B. Eligible shareholders could subscribe for 1 new share for every 23 held. The PacReef Income Today Portfolio took up this offer in full.
| Company Name | Sector |
| WESFARMERS LIMITED ORDINARY | Consumer Staples |
| TELSTRA CORPORATION. ORDINARY | Telecommunication Services |
| COMMONWEALTH BANK. ORDINARY | Financials |
| WESTPAC BANKING CORP ORDINARY | Financials |
| EVENT HOSPITALITY ORDINARY | Consumer Discretionary |
The 2016 calendar year has had a shaky start with Australian and world sharemarkets recording some of the worst opening days ever seen. In fact, the Dow Jones Industrial Average dropped 6.2% in its first five trading days of 2016 and the ASX All Ordinaries dropped 5.5% during the same period.
The World Bank has reduced its global growth forecast for 2016 from 3.3% to 2.9%, although this is still ahead of the sluggish 2.4% recorded in 2015. This downgrade follows on from disappointing growth forecasts for major emerging market economies such as China & Brazil.
RBS has sent out a research note calling for clients to “sell everything” and brace for a “cataclysmic year” as markets tumble 10-20% in the USA and Europe, or even more in England. They are recommending that clients hold only high quality bonds.
So, are we approaching another GFC style event? Although we have entered uncertain market conditions our Investment Program Manager doesn’t believe so. More importantly, for the long term investor, we believe the current volatility doesn’t really matter given the portfolio consists of securities with sound underlying profit fundamentals.
Black Tuesday: $104b wiped off share index
THE Australian sharemarket crashed to its biggest one-day fall in more than 18 years yesterday as more than $104 billion was wiped out after panic selling gripped investors.
Mounting fears of a US recession sparked a contagion that spread from Europe to Asia, causing the local market to tumble for a 12th straight trading day.
About $300 billion has been lost from Australian shares since the market peak on November 1.
"Fear has taken hold … people seem convinced the world is ending," Colonial First State's head of investment markets research, Hans Kunnen, said yesterday.
"In 2½ weeks, the whole of 2007 has been wiped out. The financial year-to-date figures are looking very red indeed," said the managing director of SuperRatings, Jeff Bresnahan.
"The darkest day in my two-year tenure on the ASX. Thirty-two per cent of my profits wiped in two days and maybe more to come," said a day trader named "Vayama" on the market chatroom Top$tocks.com.au yesterday.
The Australian market fared better than some of Asia's main bourses yesterday, with Hong Kong's Hang Seng index plunging 8 per cent. Japan's Nikkei fell 6 per cent while the New Zealand market dropped more than 1 per cent on its 14th straight day of falls.
The above headline and quotes are from an article in the Sydney Morning Herald, but not from this January, rather from January 23, 2008. That’s right, 8 years ago we were reading similar headlines to those we are reading today.
Following a very poor January in 2008, the GFC hit with full force and the ASX fell by around 1/3rd over the next 15 months. In fact, many “experts” will spruik the fact that the S&P/ASX200 Index has never recovered to its pre-GFC levels. Does it really matters if the Index never returns to the 7,000 point mark ever again? Probably not, unless you hold an Index Managed Fund or Exchange Traded Fund.
What matter is the performance of the investments you hold. The reason for this is that a lot of the falls we are currently seeing in the Index are due to falls in the share price of shares in the Resources sector lead by BHP (down 60%) & RIO (down 50%). This is a sector the PacReef Income Today portfolio does not, and cannot, invest in.
Since the date of the above SMH article and the end of 2015 what has happened with some of the securities our Investment Program Manager held for that entire period?
| Security | Price 23/1/08 | Price 6/3/09 (GFC bottom) | Price 31/12/15 | Price Change since 23/1/08 (%) | Income Return (%) | Total Return including Dividends (%) |
| BWP Trust | $ 2.00 | $ 1.65 | $ 3.16 | 58% | 84% | 142% |
| Commonwealth Bank | $ 49.87 | $ 26.64 | $ 85.53 | 71% | 116% | 187% |
| Coca-Cola Amatil | $ 9.28 | $ 8.46 | $ 9.30 | 0% | 75% | 75% |
| Event Hospitality | $ 5.85 | $ 4.10 | $ 16.46 | 180% | 120% | 300% |
| GUD Holdings | $ 9.20 | $ 5.40 | $ 8.49 | (8%) | 142% | 134% |
| InvoCare | $ 5.91 | $ 4.65 | $ 12.01 | 103% | 69% | 172% |
| NAB Income Securities | $ 100.00 | $ 59.75 | $ 69.04 | (31%) | 62% | 31% |
| Telstra Corporation | $ 4.31 | $ 3.28 | $ 5.61 | 30% | 140% | 170% |
| Westpac Banking Corporation | $ 25.22 | $ 15.90 | $ 33.56 | 33% | 112% | 145% |
| Wesfarmers | $ 35.10 | $ 16.81 | $ 41.61 | 18% | 90% | 108% |
As you can see even though these stocks continued to fall in value, in some cases more than halving, all of these stocks have recorded healthy returns over the past 8 years. Even those which are showing negative share price returns over that period are showing positive results once the income they have generated is factored in. In almost every case above the return from the income generated by the investment has exceeded the return achieved from capital growth – something that most investors tend to forget.
Regardless of what happens to world sharemarkets during 2016 we believe that opportunities will arise and that over the longer term the events of 2016 will be nothing more than a footnote to the history of the market, much the same as 2008 has become.
Prepared by HUB24 Custodial Services Ltd (ABN 94 073 633 664, AFS licence No. 239 122) ("the Operator” of HUB24 Invest (the Service)) and (("the Promoter” of HUB24 Super (the Fund))". The information contained in this document is not intended to be a definitive statement on the subject matter nor an endorsement that this Portfolio is appropriate for you and should not be relied upon in making a decision to invest in this Service or Fund.
Financial commentary contained within this report is provided by PacReef Asset Management Pty Ltd (PacReef Asset Management Pty Ltd (ABN 95 601 146 525), who is the Portfolio Manager of this Portfolio.
The information in this report is general information only and does not take into account your individual objectives, financial situation, needs or circumstances. No representations or warranties express or implied, are made as to the accuracy or completeness of the information, opinions and conclusions contained in this report. In preparing this report, HUB24 has relied upon and assumed, without independent verification, the accuracy and completeness of all information available to HUB24. To the maximum extent permitted by law, neither HUB24 or its directors, employees or agents accept any liability for any loss arising in relation to this report.
The suitability of the Service or Fund to your needs and the suitability of a particular Investment Choice depends on your individual circumstances and objectives and should be discussed with your Adviser. Potential investors must read the FSG and IDPS Guide and/or Super PDS along with any accompanying materials.
Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income, but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor.
Past performance of financial products is not a reliable indicator of future performance. HUB24 and the Trustee do not assure or guarantee the performance of any financial products offered. Information, opinions, historical performance, calculations or assessments of performance of financial products or markets rely on assumptions about tax, reinvestment, market performance, liquidity and other factors that will be important and may fluctuate over time.
HUB24, its associates and their respective directors and other staff each declare that they may, from time to time, hold interests in Securities that are contained in this Service or Fund.
PacReef Income Today Portfolio
September 2015 Quarterly Review
The PacReef Income Today Portfolio returned 0.17% compared to the benchmark (ALL ORDINARIES (TR)) return of -5.79% giving a relative performance of 5.96% for the period.
| Return % | One Month | Three Month | Six Month | One Year | Three Year | Since |
| Portfolio | -0.61 | 0.17 | N/A | N/A | N/A | -6.51 |
| Benchmark | -2.50 | -5.79 | -11.68 | -0.16 | 9.31 | -12.68 |
| Relative Performance
|
1.89
|
5.96
|
N/A
|
N/A
|
N/A
|
6.17
|
The table above sets out the investment performance returns (AFTER investment management fees, but BEFORE administration fees, performance based fees and taxes) for the Portfolio. The performance returns have been calculated on a daily basis taking into account brokerage costs, and are accumulated for the period shown. Returns are shown as annualised if the period is over 1 year, or as total returns otherwise.
The performance numbers above do not take into account the potential benefit of the Franking Credits generated by the portfolio. Pacreef Asset Management has estimated that if Franking Credits are factored in the PacReef Income Today Portfolio then the portfolio would have potentially returned 0.83% (before tax) giving a relative performance of 6.62% for the September quarter.
There is a saying by Warren Buffett that “Only when the tide goes out do you find out who has been swimming naked”. Well, it is fair to say that during the past 6 months the tide has definitely gone out on the ASX All Ordinaries (TR) Index.
During the last quarter was extremely volatile and we saw the All Ordinaries Index up by over 4% by the end of July before ending the quarter down 7.2%. The All Ordinaries (TR) Index naturally performed somewhat better but still ended the quarter down 5.79%.
By contrast the PacReef Income Today Portfolio managed to record a small positive result of 0.17% for the period.
During the quarter we exited two of our holdings in the Consumer Staples sector being Metcash and Woolworths. Additionally, we reduced our weighting in three of the Big 4 Banks – ANZ, NAB & Westpac.
Funds from these exited securities together with cash we held was redeployed into two new holdings – Automotive Holdings Group & Greencross - and increased weightings to three of the of the securities we already held – Commonwealth Bank, Telstra & Coca-Cola Amatil.
During the quarter 19 of the 24 securities we held reported their latest performance results and declared dividends. The majority of these holdings announced good results with Earnings Per Share (EPS) increasing by 13% on average. Only one of our holdings saw a fall in their Gross Dividend (Suncorp) with dividends for the period increasing by an average of 11.5% year on year.
Just like the broader market our portfolio produced a mixture of very good, average and poor results. Three of our holdings recorded negative results exceeding 10% for the quarter – ANZ (-12.73%), CBA (-11.51%) and Thorn (-24.04%). Countering this was 12 holdings that recorded positive returns for the quarter with the star performers being Greencross (+29.09%), Tassal (+29.29%) and The Reject Shop (+62.82%).
We remain resolute in our belief that the key to long term performance of the portfolio is to focus on the individual securities we hold and their ability to grow their dividends without becoming distracted by the volatility in the market. We believe that much of this volatility is to do with macroeconomic issues and not the quality of the actual companies held in the portfolio.
| Company Name | Sector |
| WESFARMERS LIMITED ORDINARY | Consumer Staples |
| TELSTRA CORPORATION. ORDINARY | Telecommunication Services |
| COMMONWEALTH BANK. ORDINARY | Financials |
| COCA-COLA AMATIL ORDINARY | Consumer Staples |
| BWP TRUST ORDINARY UNITS | Financials |
Whilst ever uncertainty remains at the forefront of investor’s minds we believe that the current levels of volatility being seen in world markets will continue for the foreseeable future. We continue to see the S&P/ASX 200 VIX (volatility index) running at very high levels, even if it has come off its recent extreme highs.
With people focussing on macroeconomic factors such as a slowdown in the Chinese economy, possibly raising of US interest rates and continued concern about European economic activity your portfolio manager feels that some of these concerns may be misplaced and are seeing several reports that give us confidence that the reality will not be as bad as people seem to be expecting.
The National Australia Bank has released a China Economic Update in which they claim that they believe the scale of the Chinese economy may be significantly understated due to differences in the accounting methodology used in China compared to that used in other advanced economies. Even without these revisions China’s GDP Growth Rate is still forecast to rise by over 6% during the next 12 months.
Eurostat figures released in August showed the Eurozone economy expanded by 0.4% in Q2 of 2015 boosted by higher exports and resilient consumer spending. In fact all Member States, for which data was available for Q2, showed increased GDP with the exception of France which was stable. Some of the highest growth rates were recorded in the previous problem Countries of Spain (+1.0%) and Greece (+0.9%). Year on Year, the Eurozone expanded by 1.5% which was better than the initial estimate of 1.2%. The European Union grew by 1.9%.
Whilst our portfolio specifically excludes exposure to Resources stocks, it is still important to understand that they have an impact on the overall Australian market and economy. Here again we are seeing some positive signs with the July 2015, EIU Economic and Commodity Forecast indicating that Iron Ore, Gold, Copper and Oil prices all having reached the bottom of the cycle.
We expect that any bad news from individual companies will be dealt with harshly by the market and that it may take some time for positive macroeconomic news to feed through to the general market. This negative cloud over markets will test the patience of those who do not understand the true value of investing to generate an income. However, rather than being a short term reason for concern we believe that it could present opportunities for long term investors.
Prepared by HUB24 Custodial Services Ltd (ABN 94 073 633 664, AFS licence No. 239 122) ("the Operator” of HUB24 Invest (the Service)) and (("the Promoter” of HUB24 Super (the Fund))". The information contained in this document is not intended to be a definitive statement on the subject matter nor an endorsement that this Portfolio is appropriate for you and should not be relied upon in making a decision to invest in this Service or Fund.
Financial commentary contained within this report is provided by PacReef Asset Management Pty Ltd (PacReef Asset Management Pty Ltd (ABN 95 601 146 525), who is the Portfolio Manager of this Portfolio.
The information in this report is general information only and does not take into account your individual objectives, financial situation, needs or circumstances. No representations or warranties express or implied, are made as to the accuracy or completeness of the information, opinions and conclusions contained in this report. In preparing this report, HUB24 has relied upon and assumed, without independent verification, the accuracy and completeness of all information available to HUB24. To the maximum extent permitted by law, neither HUB24 or its directors, employees or agents accept any liability for any loss arising in relation to this report.
The suitability of the Service or Fund to your needs and the suitability of a particular Investment Choice depends on your individual circumstances and objectives and should be discussed with your Adviser. Potential investors must read the FSG and IDPS Guide and/or Super PDS along with any accompanying materials.
Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income, but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor.
Past performance of financial products is not a reliable indicator of future performance. HUB24 and the Trustee do not assure or guarantee the performance of any financial products offered. Information, opinions, historical performance, calculations or assessments of performance of financial products or markets rely on assumptions about tax, reinvestment, market performance, liquidity and other factors that will be important and may fluctuate over time.
HUB24, its associates and their respective directors and other staff each declare that they may, from time to time, hold interests in Securities that are contained in this Service or Fund.
