New Heights Amidst Sector Divergence
The ASX 200 reached new record highs in August, marking its fourth consecutive monthly gain with a 0.4% increase. This resilience is particularly noteworthy given the market's ability to recover from a sharp 6% decline in the month's first week.
Sector Spotlight:
Growth Sectors Lead: Technology (+7.2%), Industrials (+3.5%), and Financials (+1.9%) spearheaded the market's ascent.
Resources Under Pressure: Energy (-6.2%) and Materials (-1.7%) faced headwinds, highlighting the stark performance gap between growth and value sectors.
Economic Landscape: Challenges on the Horizon
The Australian economy's growth rate slowed to 0.2% in the June quarter, resulting in an annualized rate of 1.0% - the weakest in 30 years outside of the pandemic period. This slowdown raises important considerations for investors:
Private sector activity showed significant weakness.
Public spending emerged as the primary contributor to GDP growth.
The FY24 reporting period revealed that higher interest rates are finally impacting household consumption and private sector investment.
Portfolio Moves: Adapting to Market Signals
Our active management approach led to several strategic portfolio adjustments in response to the August earnings season:
Increased Position: Goodman Group (GMG)
Impressive 14% EPS growth, exceeding guidance
Strategic expansion into the high-potential data center sector
Opportunistic Buy: Origin Energy (ORG)
Well-positioned to benefit from electrification and decarbonization trends
Strategic investments in batteries and Virtual Power Plants
Strategic Exit: Spark NZ (SPK)
Disappointing FY24 earnings and deteriorating earnings quality
Weak FY25 guidance and unsustainable dividend payout ratio
Looking Ahead: Navigating Uncertainty with Prudence
As we move forward, we're mindful of several key factors:
Corporate Australia maintains a cautious outlook amid economic slowdown signs.
Inflationary cost pressures persist for companies.
ASX 200 earnings growth for FY25 is forecast at a modest 3%.
The broader market trades at a P/E of ~17.5x, representing a 20% premium to its long-term average.
Our Strategy:
In this environment, we're doubling down on our core philosophy: focusing on industry leaders with a proven track record of delivering resilient earnings and dividends throughout economic cycles.
Fund Performance Highlights
Income Portfolio:
Top Performers: Brambles (BXB), Northern Star (NST), Premier Investments (PMV)
Underperformers: Spark NZ (SPK), Santos (STO), Origin (ORG)
Concentrated Portfolio:
Top Performers: ResMed (RMD), Premier Investments (PMV), Macquarie Group (MQG)
Underperformers: Macquarie Technology (MAQ), Santos (STO), Spark NZ (SPK)
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