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 October 2021

It was a mixed performance for global equity markets in October, with the main US indices rallying quite strongly, while overall, Australian equities were flat. In the US, the broad S&P500 gained 6.9%, while the technology focused Nasdaq100 rallied 7.9%, with both markets ending the month at new all-time highs, thus reversing the correction lower in September. In Australia, the ASX200 edged higher for much of the month only to end with a large down day at month end, the net result being a monthly decline of -0.1%. In Australia, industrials and energy stocks were the biggest drag on the overall market, while the information technology sector was the standout, gaining 2.1%.

It is important to note that the Australian dollar was stronger for the month, gaining 4.1% against the US dollar. A stronger AUD has a negative effect on the AUD valuation of US denominated assets, impacting both the US Growth portfolio as well as components of the Low Volatility portfolio, specifically the equities and gold buckets, which combined account for approximately 50% of the total portfolio exposure. It is important to remember that fluctuations in the AUD/USD work both ways, being a headwind when the AUD appreciates, while being advantageous when the AUD is depreciating. And given that over a longer-term period, we view the AUD as cyclical and not in a persistent trend against the USD, one way or the other, any currency affects in the short run, will tend to even itself out of the longer term.

Expanding earnings and margins by U.S. companies have provided a tailwind for equities, providing comfort that stocks can withstand the gradual withdrawal of stimulus as opposed to a scenario where rising stock prices are driven by changes in valuation multiples which have edged lower recently. In the U.S. roughly 80% of companies have now reported third-quarter earnings with 82% of those companies’ beating analyst estimates by an average of 10% while in Europe 60% of companies have topped analyst earnings estimates by an average of 8.3%.

Inflation remains a concern for investors as a supply and demand imbalance continues following the pandemic and reopening of economies as supply chains lag demand. While this is expected to ease in the latter half of 2022, those pressures continue to weigh on business evidenced by growing delivery delays, higher input prices and labour shortages in PMI reports.

Central banks will want to continue to see improvement in labour markets, sustained wage growth and persistent inflation within target levels before they look to raise interest rates while investors have begun pricing in rate hikes in the latter half of 2022 for major central banks. Notably this week the Federal Reserve has announced the tapering of asset purchases, while maintaining flexibility to speed up or slow down depending on the economic outlook, a similar stance to the RBA which in early November abandoned its yield curve control target of 0.10% for the April 2024 bond while maintaining dovish rhetoric around the outlook for interest rates and the continued $4b per week purchase of bonds.

To 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. Both Growth portfolios employ a systematic approach to stock selection, utilising both ‘momentum’ and ‘quality’ factors, and aims to identify high growth companies, whereby returns are predominantly generated from capital gains. The best performing portfolio in October was US Growth, which gained 1.47% net of fees, led by rallies in NVIDIA (NVDA, +23.4%), United Parcel Service (UPS, +17.2%), and Atlassian Corp. (TEAM, +17.0%), while Moderna (MRNA, -10.3%) was the largest decliner. The biggest reason that the portfolio lagged the performance of the USD based Indices was in fact the stronger AUD, which we discussed above. The ASX Growth portfolio declined 2.19% in October, after fees, with Domino’s Pizza (DMP) and South32 (S32) the biggest detractors, while Appen (APX) gained 11.7% since entry into the portfolio mid-month.

While ASX Growth was lower, on the other hand, ASX Income had a good month, increasing in value by 1.34%, net of fees. One of the appeals of ASX Income is the ‘ASX Events’ strategy which accounts for approximately 30% of the overall portfolio and tends to be uncorrelated to the broader market. In October, some nice gains within this part of the overall portfolio offset some weakness across our ‘Blue Chips’ holdings. With events, activity ticked up a little throughout October, with new purchases of ALE Property (LEP) and Z Energy (ZEL) which offer solid low risk annualised returns. There was a good outcome for the position in Huon Aquaculture (HUO) which had been trading well below the offer price from JBS, as the Foreign Investment Review Board (FIRB) supported the deal before the shareholder vote effectively ended the investment. While we didn’t see the competing bid we had hoped for, the result ended up a lot better than it could have been if the FIRB decision didn’t go the way we expected. The share price of HUO gained 9.7% for the month.

Lastly, the Low Volatility (LV) portfolio declined 1.16% for the month, net of fees. LV was impacted by lower bond prices, with Australian government bonds (VAF) and Aust. Investment grade corporate bonds (CRED) declining 3.3% and 3.8% respectively. More so, gold, priced in Australian dollars (GOLD) dipped 1.1%, and the three equity ETFs held were mixed. Broadly speaking, gains in the price of the underlying equities were offset by a stronger Australian dollar.

Looking to the months ahead, and as we are entering what has typically been a strong seasonal period for equities, being the last two months of the year, combined with markets broadly at all-time highs, and still in uptrends, we believe the balance of probabilities is for higher levels into the end of the year. Not withstanding the typical corrections along the way.

All performance data presented in this document relates only to the start date of the SMA portfolios on June 12, 2019. The performance below refers to the model portfolios, net of 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 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.

As Investors should be aware, we have recently made changes to our SMA portfolios, to simplify our offering. As of this month, we are reporting on the four portfolios now available, being ASX Income, Low Volatility, ASX Growth, and US Growth. 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 20201, whereas ASX Income and Low Volatility remained 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