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 January 2022

In terms of market activity, equities have started the new year on the back foot, with both Australian and US stocks selling off quite sharply throughout the month of January. Following strong gains to end 2021, the ASX200 Accumulation Index declined 6.4% in January, while in the US, the S&P500 and technology-focused Nasdaq100 declined by 5.3% and 8.5% respectively. These are the largest monthly declines for the major indices since March 2020, at the height of the Covid-19 induced sell-off.

In the US, the selling was largely broad-based, with consumer discretionary stocks the hardest hit, while the energy sector bucked the trend, gaining close to 19%, off the back of stronger crude oil prices, which themselves gained over 18% in January, with the benchmark WTI Crude Oil futures closing above US$89 a barrel. On the local share market, energy, utilities, and materials stocks (based on the sector performance) closed higher, while information technology was sold aggressively, with the sector declining 18.4%.

On the economic front, January marked a key change in rhetoric from central bankers which shifted decisively more hawkish to be more aligned with recent market pricing. The focus was on the Federal Reserve in the U.S. where the statement from the FOMC and post-meeting press conference with Chairman Powell was decisively more concerned about inflation, not that surprising, given the Consumer Price Index (CPI) in the US is now at 7% p.a.  Markets continue to move based on forward expectations, and with the U.S. Treasury 10-year yield recently rising from 1.17% to 1.76% over the past six months, a more hawkish stance from the central bank may already be priced in pending no further inflationary shocks from the pandemic.

Elsewhere, while the US earnings season has recently taken a backseat to central banks, solid company earnings remain supportive for equity prices. Of the 233 S&P500 companies which have reported earnings so far, 76% have beaten earnings per share (EPS) estimates by an average of +5.30%, while 69% have surpassed revenue estimates by an average of +3.29%.

To the performance of the portfolios, and Rivkin offers four options on the Mainstream Self-Managed Account (SMA) platform, being ASX Growth, US Growth, ASX Income, and Low Volatility. From our two Australian-focused portfolios, the ASX Growth portfolio suffered the most during the increased market volatility, declining 12.90%, net of fees, while ASX Income declined by 1.74% net of fees. From the Growth portfolio, the declines were broad-based across the portfolio, with both Momentum and Value stocks selling off, with Pro Medicus (PME) and Allkem (AKE) the largest detractors, both down over 20% for the month.

From the Income portfolio, the Blue Chips stocks held up rather well in a relative sense, with most stocks falling less than the Index, while BHP Group (BHP) rallied 11.7%, quite a performance in a weak market. More so, the ASX Events component of the portfolio tends to be uncorrelated with the broader market, as these opportunities are based on corporate activity such as takeover offers. During the month of January, the Event portfolio continued its low-volatility ways with the exception being the disappointing exit of Woolworths (WOW) from the bidding war for Australian Pharmaceutical Industries (API). Fortunately, we had already sold half our position on the view that the position was higher-risk roughly 15% above the only binding offer, but it’s still frustrating to see some unrealized gains disappear. We did see the spreads on a few arbitrages blow out a little, but with the Icar Asia (ICQ), Ausnet (AST), and Sydney Airport (SYD) scheme meetings all going to plan at the back end of January, the spreads closed accordingly. With the proceeds of these three investments due to be paid over the next month, we hope to have new opportunities to reinvest.

The US Growth portfolio held up relatively well for the month, declining -2.72%, net of all fees. This was a combination of the effects of a weaker Australian dollar, as well as strong performance from many of the ‘Value’ stocks held, with Lockheed Martin (LMT) and Philip Morris (PM) the top gainers, at 9.5% and 8.3% respectively. The worst performer for the month was Gilead Sciences (GILD), which declined in line with the market, down -5.4%. Regarding momentum stocks, we have reduced our exposure to 50% of its normal weighting, given the triggered condition of the S&P500 Index closing below its 200-day simple moving average (SMA) for 5 consecutive trading sessions. This is a risk mitigation tool aimed at avoiding holding a fully invested portfolio throughout a sustained bear market, should that develop.

Lastly, the Low Volatility portfolio declined by 1.48% net of fees, with the portfolio feeling the effects of weaker equity prices while being supported by a weaker Australian dollar and higher gold prices. The AUD Gold price lifted 1.6%, while within equities, IVV, which track the S&P500 fell -3.8%, and VTS, the Vanguard US Total Market ETF declined by -4.9%. There was a change to the third equity holding, with NDQ being sold for IOO, which is the iShares Global 100 ETF. Bond prices were slightly weaker for the month; however, we did make a change to the composition of the bond ETFs held, opting to sell out of VAF, the Vanguard Aust. Fixed Interest ETF, and using the proceeds to increase our weight in HBRD, which tracks a basket of ASX listed hybrid securities. The rationale is that because hybrids pay a floating rate coupon, they are less susceptible to rising interest rates.

Looking to the months ahead, and while it appears that the broad-based selling of the past few weeks has subsided, for now, we cannot say for sure that a major low is currently in place. As we discussed in our December 2021 update, we expect that returns in 2022 will likely be concentrated in specific sectors, and less broadly based across the entire market. More specifically, assuming the risks of both higher than anticipated inflation and interest rate increases remain elevated, technology-based growth stocks are likely to face headwinds, while energy, commodity, and financial should do better.

More so, we know that both ASX Income, with its 30% allocation to ASX Events, and Low Volatility, with its multi-asset approach, have historically exhibited lower volatility and drawdowns than the broader equity market indices. And with both the US and ASX Growth portfolios, we have risk mitigation strategies in place, which will see both portfolios increase their weighting to cash, should the current decline continue to progress.

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.

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.

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) (part of Perpetual Group ABN 45 003 278 831 AFSL No 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.

PERPETUAL BEING THE ISSUER AND RESPONSIBLE ENTITY UNDER The Trust Company (RE Services) Limited (Perpetual, Responsible Entity, RE, we, us or our), part of the Perpetual Group ABN 45 003 278 831 AFSL No 235150