Mainstream Separately Managed Accounts allow clients to follow Rivkin’s proven investment strategies without having to trade themselves. Our four portfolio options have been designed to suit various different investor goals.

Monthly Update July 2022

Welcome to the monthly performance report for the Mainstream SMAs for July 2022. Equities have started the new financial year on a bullish footing, with markets both in Australia and the US rallying strongly. Locally, the ASX200 Accumulation Index gained 5.7% in July, while in the US, the S&P500 Total Return Index gained 9.2%. This follows a weak six months to June 2022, whereby the key Australian and US equity benchmarks fell by 9.9% and 20.0% respectively. For US equities, this was the weakest first half to a calendar year since 1962.

We discussed in the June update that although official cash rates, as determined by Central Banks, are likely to keep going up over the coming months, the bond market is suggesting that the ultimate peaks will likely end up lower than initially anticipated, and more so that rate cuts are likely in 2023. This theme has played out during July, with the US Federal Reserve and Reserve Bank of Australia (RBA) lifting official cash rates by 0.75% and 0.50% respectively over recent weeks. Nevertheless, yields on government bonds, further out the curve, have eased over this time. Using the 10-year government bond yields as an example, yields in the US fell over 12% to end the month at 2.65%, well below the peak of 3.49% in mid-June, while in Australia, the yield on the 10-year bond is back towards 3%, after peaking just above 4.25%.

In the US, the next Fed policy meeting is not until September, and many are suggesting that the Fed Chairman, Jerome Powell, will use his speech at the upcoming Jackson Hole Economic Symposium at the end of this month to outline a more dovish stance, meaning less aggressive in terms of official cash rate increases. Much of this will continue to be driven by inflation, and how much official inflation figures begin to fall. One big component of inflation is energy, and as we write, crude oil prices are trading below US$92 a barrel, levels not seen since April, which is a positive.

In economic data, July brought further signs of a global economic slowdown with PMI reports showing business activity continues to decline, approaching contractionary territory as well as weak retail sales when accounting for inflation and sharp declines in consumer sentiment. A decline in growth was also highlighted by a second consecutive quarter of GDP contraction in the U.S. which declined by -0.9% on an annualized basis following a -1.6% decline in the first quarter, meeting the technical definition of a recession.

Second quarter U.S. earnings continue to progress with 76% of S&P500 companies having reported, with 75% of companies beating earnings estimates by an average of +5.2% and 62% beating revenue estimates by an average of 2.62%. Looking ahead to Q3, analysts expect earnings to grow +5.4% over the quarter, although have been revised lower +8.5% since the start of July, in line with guidance from corporates and weaker economic data. August is also annual reporting for ASX-listed companies, meaning there will be plenty of stock-specific news to digest this month.

To the performance of the portfolios, Rivkin offers four options on the Mainstream Self-Managed Account (SMA) platform: ASX Growth, ASX Income, US Growth, and Low Volatility. The Growth portfolios were the top performers in July, with ASX Growth gaining 8.90% for the month net of fees, while US Growth rallied 5.46%, net of fees. The more defensive ASX Income portfolio, gained 1.67%, while the Low Volatility portfolio ended July 1.57% higher, both net of fees.

For the ASX Growth portfolio, the relative out-performance (against the ASX200) witnessed in June has translated into strong absolute performance in July, with solid gains across much of the portfolio, with a focus on ASX Quality names. In short, the easing in bond yields which affects both funding conditions and valuations have seen growth companies bounce strongly, with the top performers from the portfolio being Wisetech Global (WTC, +32.4%), Clinuvel Pharmaceuticals (CUV, +26.4%), and Hub24 (HUB, +20.2%). The Momentum component of the portfolio was a lot more subdued, with many stocks within the energy and materials sectors underperforming the broader market. This however is one reason we diversify across the two different quantitative strategies, knowing that they tend to go through periods of strong performance at different times.

The US Growth portfolio retains a somewhat ‘defensive’ stance at present, with only half of the capital allocated to US Momentum invested in Momentum stocks. The remainder is currently within defensive ETFs, which track Gold (GLD), the US Dollar Index (UUP), and 1–3-year treasury bonds (SHY). Nevertheless, the portfolio was firmly higher in July, led by gains across several US Quality stocks, including eBay (EBAY, 16.7%), Qualcomm (QCOM, +13.6%), and American Express (AXP, +11.1%), To reiterate, the US Growth portfolio is currently positioned as 40% allocated to US Quality, 20% to US Large Cap, 20% to US Momentum, and 20% to Defensive. The trigger to move the 20% Defensive back into Momentum will come based on an index filter, being 5 consecutive closes for the S&P500 above its 200-day moving average, which is currently located 4.5% above current prices. Gains of 1.3% for the Australian dollar in July provided a slight headwind, given the unhedged nature of this portfolio.

Regarding ASX Income, the Blue-Chips component of the portfolio, which is approximately 50% of the total portfolio lagged the broader market in July, dragged down by weakness in some of the large, diversified miners, specifically BHP Group (BHP, -6.2%), and RIO Tinto (RIO, -4.7%). On the other hand, banking stocks were stronger, with both Westpac (WBC) and National Australia Bank (NAB) rallying over 10%. It was an eventful month for the Event strategy, with profitable conclusions to our Crown hybrid (CWNHB) and Virtus (VRT) positions and new entries in MACA (MLD) and Paygroup (PYG). Additionally, our troubled investment in Link Market Services (LNK) enjoyed a recovery as a new deal was signed with bidder Dye & Durham, while we have received a significantly improved offer for ResApp (RAP) in early August. Pleasingly, corporate activity remains at elevated levels, and with lowering expectations of the peak in long-term interest rates, there is good reason to think that activity will remain strong and that the portfolio will be well-invested.

Finally, regarding the Low Volatility portfolio, July brought a nice reprieve following a streak of negative months, with both equity and bond prices higher. The three equity ETFs currently held, IVV, IOO, and VTS, gained between 5.1% and 6.8% for the month, while corporate credit (CRED) and Aust. Government Bonds (VAF) gained 4.2% and 3.7% respectively. Gold, which accounts for approximately one-quarter of the portfolio was down 4.5% in July. As a reminder, the Low Volatility portfolio also participates in ASX Event trades, meaning that the bulk of the comments from above regarding ASX Events is relevant to this portfolio also.

Looking forward, we anticipate that the clear shift in investor sentiment in July will continue over the coming months, notwithstanding corrections along the way. Overall, participants remain overly negative on the outlook for equities, which in our opinion, is often an environment in which prices surprise and trend higher. All this against a backdrop of quite a strong seasonal and cyclical period into the end of the year. In the US, we anticipate the focus will shift to the upcoming mid-term elections, where there will be a strong incentive from the White House to return focus to domestic policy, with emphasis on jobs and GDP growth.

All performance data presented in this document relates only to the start date of the SMA portfolios, being June 2019 for ASX Income and Low Volatility and July 2021 for ASX Growth and US Growth. The performance below refers to the model portfolios, net of both management and performance fees, which will not match exactly everyone’s account while providing an accurate representation. Please use the investor portal or call us to check your account-specific performance.

*Past performance is not indicative of future performance. The inception date for ASX Growth and US Growth is 1 July 2021. Low Volatility and ASX income inception date is 12 June 2019

The above table shows the returns of each portfolio, being ASX Growth, US Growth, ASX Income, and Low Volatility, over various time periods after brokerage, management, and performance fees. Individual account performance may vary from the results above due to a number of factors including, but not limited to, rounding, small variations in stock weightings, and account start date. Please log in to your Mainstream Account to have the most accurate picture of your account’s performance.

Please note that we don’t have historical data for the ASX and US Growth portfolios, as were included in the SMA offering from 1 July 2021 whereas ASX Income and Low Volatility remain unchanged.

For those interested in the historical performance of the individual strategies, please click here

*Past performance is not indicative of future performance. The inception date for ASX Growth and US Growth is 1 July 2021. Low Volatility and ASX income inception date is 12 June 2019.

Note: All returns in this document are net of fees, 1.5% management fee (1% for capital Stable); and 10% performance fee where applicable with high watermark ( 5% for capital stable) for the complete list of the fees please refer to the PDS issued by The Trust Company (RE Services) Limited a part of the Perpetual Group.

*$70,000 for US Growth

**5.0% for Low Volatility

#1.0% for Low Volatility

The PDS and target market determination can be obtained by calling 02 8302 3600 or visiting our website at www.rivkin.com.au.

This information has been prepared and issued by Rivkin Securities Pty Ltd (ABN: 87123290602, AFSL: 332 802).

Important Notice: Please consider your own financial situation before investing in our products. Rivkin does not provide personal financial advice and does not take anyone’s personal financial situation into account when structuring its model portfolios.

Past performance and/or backtesting is not a guarantee of future performance. Investing and trading carry financial risk, when judging performance please consider the different types of investments and levels of risk associated.

The Trust Company (RE Services) Limited (ABN 45 003 278 831, AFSL 235150) is the responsible entity and the issuer of units in the Mainstream Separately Managed account. It is general information only and is not intended to provide you with financial advice, and has been prepared without taking into account your objectives, financial situation or needs. You should consider the product disclosure statement, available on www.rivkin.com.au, prior to making any investment decisions. If you require financial advice that takes into account your personal objectives, financial situation or needs, you should consult your licensed or authorised financial adviser. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.

All opinions and estimates constitute judgments of Rivkin and are subject to change without notice. These statements should therefore not be relied upon as an accurate representation or prediction as to any future matters. 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. Past performance is not indicative of future performance.

Total returns shown for the Mainstream Separately Managed Account have been calculated using exit prices after taking into account all of Perpetual’s ongoing fees and assuming reinvestment of distributions.