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 August 2020
The recovery off the March lows continues, with both Australian and US share markets pushing higher throughout August. By month’s end, the ASX Accumulation Index had gained 2.83%, while in the US, the S&P500 Total Return Index added 7.19%. We discussed last month how US equities have far outperformed local equities since the recovery began, with this performance differential only widening further throughout August. This is best demonstrated by Chart 1 below, which shows the relative performance of the ASX200, S&P500, and Nasdaq100 since March 23, which was the date that the recovery from the February to March decline began. Since that date, and up until September 2, the ASX200 has rallied 33.3%, returning prices to around the 6100 level, and still some 15% or so below the prior peak at around 7200. Compare this to both the S&P500 (+56.4%) and the Nasdaq100 (+72.8%) which have now both fully retraced the prior decline to be setting new all-time highs. This outperformance can be largely explained by the large weighting to technology stocks in the US (particularly the Nasdaq), which have been significant beneficiaries of the increased shift to online shopping and communications brought about by the COVID-19 pandemic.
Chart 1 – Relative Performance from March 23 to September 2.
Rivkin offers six different underlying strategies on the Mainstream SMA platform, which we combine into four recommended portfolios. Two of these, ‘Smart Growth’ and ‘Defensive Income’, are focused on ASX investments. During August, Smart Growth returned 2.97%, while Defensive Income returned 1.22%, both net of fees. The third of our suggested portfolios, ‘Global Growth’, which has approximately 60% weighting to US equities was the top performer, gaining 4.50%, while Capital Stable gained 0.87%.
At the strategy level, it was the momentum portfolios which were the better performers in August, which is not surprising, as momentum tends to do well when a strong, established uptrend is in place. This was particularly evident in the US, where the US Momentum strategy returned 9.86% in August, which is after the adverse effect of a 3.3% rally in the Australian dollar. We discuss the Australian dollar in more detail below, but for now, it is essential to remember that as we report performance in Australian dollar terms, the US Momentum, US Value, and to a lesser extent, Capital Stable, are all exposed to movements in the AUD/USD currency pair.
Back to US Momentum, four of the ten stocks, Tesla (TSLA), Zoom (ZM), NVIDIA (NVDA), and JD.Com (JD) all rallied over 20% throughout August, with Tesla far outperforming, with a gain of 74.1% for the month. Important to note that Tesla recently conducted a 1-for-5 share split, which explains the decrease in the quoted price from above $2000 a share to be $498.32 a share at month-end. The ASX Momentum portfolio also performed well, increasing 4.17%, thanks mainly to Afterpay (APT) which rallied over 30% in August, while JB Hi-Fi (JBH) and Domino’s Pizza were the next best. The Value strategies both lifted higher in August, with ASX Value gaining 1.76%, while US Value added 1.18%, while the fifth equity strategy, ASX Income gained 1.08%. We do expect the dividend yield on the ASX Income portfolio to decline somewhat given that several ASX stocks have reduced their dividends for the coming 12 months, with the economic contraction brought on by COVID-19 cited as the primary reason.
Nevertheless, this strategy is also comprised of our event arbitrage strategy, which has been sourcing several fruitful trades over recent months. In August, we saw increased bids for Cardinal Resources (CDV) and Zenith Energy (ZEN) and continued progress on the other investments through their deal processes. The CDV position has improved even further in September, with the position now sitting at roughly 50% in paper profit, a great outcome given the low-risk nature of the investment at our entry point.
Finally, Capital Stable gained 0.87% for August, taking the return for this portfolio for 2020 to date to 6.85%. We have made some changes to the asset classes held in Capital Stable over the month, specifically, we have moved some of our exposure in an Australian government bond ETF to one which tracks investment-grade corporate debt, which offers a slightly higher risk and volatility profile. More so, we have split our equity exposure (25% of the total strategy), across three different ETFs, based on a systematic momentum approach.
Regarding the Australian dollar, we have fielded several calls from investors over the past week, citing concerns of the strong rally in the AUD/USD and the adverse effect this has on our US-based investments, specifically US Value and US Momentum. The chart below of the AUD/USD currency pair puts this rally into context. While it is true that an appreciating AUD/USD rate has an adverse impact, we would view this only a problem if the AUD was going to be persistently strong against the USD for the next 3-5 years, i.e. our investment horizon. We don’t believe this will be the case. As the long term chart below shows, the Australian dollar is quite cyclical against the USD, with current levels not far off the middle of the historical range.
Looking to the weeks and months ahead, given the strength of US equities in particular over recent months, investors should not be alarmed should a price correction occur. Markets never go up in a straight line, and given the amount of bullish sentiment evident at present, the probability of a pause in the current trend is rising.
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, while providing an accurate representation, will not match exactly everyone’s account. Please use the investor portal or call us to check your account-specific performance.
*Past performance is not indicative of future performance
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 accounts performance.
The table below presents performance on a monthly basis for each of the portfolio options. Again, results in this table are after brokerage and fees.
Returns for June represent performance from the launch date of 12 June 2019 to the end of month.
*Past performance is not indicative of future performance
Rivkin also offers its original investment strategies on the SMA platform. The table below shows the returns of these strategies.
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.
**5.0% for Capital Stable
*1.0% for Capital Stable
This product PDS is issued by The Trust Company (RE Services) Limited a part of the Perpetual Group, ABN 45 003 278 831,AFSL No 235150.
Please search our website or request the PDS to understand full risks and costs of the product before taking decision to invest in it.
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.
To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. 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.
Important Notice:
Performance data shown represents past performance. Past performance 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.
All information and data on this post are provided in good faith and are believed to be accurate and reliable at the time of publication. However, the returns shown in this post might differ from yours due to various reasons such as the time you have entered the market and the amount invested. If you are seeking for clarification, please contact us on 1300 748 546.
