Strategy Objective: The Rivkin Australian Defensive Income Strategy aims to produce positive average annual returns while seeking to maintain a level of volatility lower than that of the S&P/ASX 200 Accumulation Index over the same investment period. The strategy focuses on income over capital growth and invests in high dividend paying blue chip stocks, hybrid securities, and takeover arbitrage.

31 October 2020 Equivalent Unit Price – A$0.9240

Welcome investors to the monthly update for the Rivkin Australian Defensive Income Strategy (RADIS) for October 2020. As we mentioned in our update for September, we suspected that volatility would increase during October, largely because of the US election in early November. And while we did see a sharp selloff into month end, prices have rebounded rather quickly this week, suggesting that any major fears surrounding the election were overblown. The portfolio declined slightly for the month of October, with the Equivalent Unit Price (EUP) declining by 0.95% to end the month at 0.9240.

Monthly Commentary

The biggest news this week has been the US presidential election. Although a winner is yet to be formally announced, Joe Biden is currently holding a commanding position to take the Presidency, while the Republicans are likely to retain the Senate, meaning we are currently looking towards at least two years of gridlock in Washington. This may actually prove a positive for equity markets in the US, as the proposed US corporate tax hikes by Biden will now likely stall, while the recent push by the Democrats to break up the tech giants, such as Facebook and Google, will also be off the table. The big unknown will be the size of the next round of government stimulus, however post-election, both parties will be more eager to get a deal done.

More locally, in addition to increasing their purchases of government bonds, the RBA cut the Cash Rate to a historic low of 0.1% this week. While not directly related to this decision, we have made a rather significant change to the current make-up of the Defensive Income portfolio, as a result of historically low interest rates, and specifically their implications on the performance of ASX hybrid securities. Hybrid securities pay distributions which are commonly determined by a set margin above the Bank Bill Swap Rate, which itself is determined by short term interest rates. As such, as interest rates fall, the size of hybrid distributions also falls, which reduces their appeal from an investment perspective.

As such, we have made the decision to remove all exposure to the hybrid securities for the time being, which was previously 30% of our total exposure. This was replaced by the Low Volatility portfolio, which uses a combination of ETFs across different asset classes to provide a very attractive risk return profile. The asset classes include the S&P500 stock index, Australian dollar gold, and Australian government bonds. Although these securities are not income yielding as such, when combined, given that they exhibited low correlation to each other, they provide a very low risk portfolio, not too dissimilar to the overall risk/return profile of hybrid securities.

To summarise, the Defensive Income portfolio will now contain approximately 30% allocation to the Low Volatility strategy, 50% to the ASX Blue Chip strategy, which holds the top dividend stocks from the ASX50, and 20% allocation to Events, which includes tactical opportunities such as takeover arbitrage.

If you have any questions regarding the above or your investments with Rivkin in general, please call us on 02 8302 3605.

Performance

NAV Price Chart

Monthly Returns

Portfolio Composition

Sector Breakdown

Top 10 Stock Holdings

Strategy Weighting

Strategy Description & Information

The Rivkin Australian Defensive Income Strategy invests predominantly in listed Australian securities whose characteristics satisfy one or more of the strategies that occupy the portfolio. These strategies include: Blue Chips, being high dividend paying stocks from the ASX50, Hybrids Securities, which as the name suggests are a hybrid between a debt and equity instrument, and Events, which include opportunities such as takeover arbitrage.

Important Disclaimer

The Rivkin Australian Defensive Income Strategy is available to wholesale investors only. Past performance is not a reliable indicator of future performance. The value of your investment may rise and fall, and you may not receive the amount originally invested.

Contact

Thomas Silitonga – Director, Rivkin Asset Management

thomas.silitonga@rivkin.com.au –  +612 8302 3605