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 May 2020 Equivalent Unit Price – A$0.8562

Welcome investors to the monthly update for the Rivkin Australian Defensive Income Strategy (RADIS) for May 2020. Following a 4.83% gain in April, the strategy returned 2.90% in May, with the equivalent unit price (EUP) ending the month at 0.8562. Despite back to back positive monthly returns in April and May, the portfolio remains down for 2020, following a 37% decline for the ASX200 Index between February and March.

Monthly Commentary

We would imagine that economic data will continue to look very pessimistic over the coming months, however it is important to recognise the difference between backwards looking economic data, and stock market performance, which is always forward looking. Put another way, stock prices will bottom well before the economic data shows improvement. We highlight this point, because equity markets continue to rally despite the economy lagging, with Australia all but guaranteed to enter a recession this year. On Wednesday this week, GDP figures released showed that the Australian economy contracted by -0.3% in the March quarter. Added to this, the protests, riots, and looting in the US are adding to the pessimistic mood, however equity markets are ignoring this for now.

The portfolio ended the month of May with a cash weighing of 9.8%, meaning that approximately 90% of assets are invested at present. Hybrids securities, which make up approximately one third of the portfolio continue to recover strongly, with many of the holdings having returned to levels from January this year, prior to the Covid-19 induced selloff in February and March.

From the Blue Chip portfolio, which accounts for approximately 45% of the entire portfolio, Stockland (ASX: SGP) was the standout performer, gaining 23.96% over the course of the month, with Vicinity Centres (ASX: VCX) and BHP Group (ASX: BHP) the next best, gaining 8.05% and 7.08% respectively. We wish to note that the sector breakdown that is provided below relates only to the Blue-Chip portfolio meaning the Hybrids and Events stocks are excluded. As shown, the real estate (34.1%), financials (27.0%), and materials (21.1%) make up the bulk of the Blue Chips at present, with a single stock from both the utilities and energy sectors.

With the Events Strategy, Both the Windlab (ASX: WND) and Zenith Energy (ASX:ZEN) trades have proceeded as planned and are closing in on completion, while we continue to wait for the payment from Onemarket (ASX: OMN). This week, we have seen our first big takeover bid since the coronavirus pandemic rocked stock markets in late February and March, with wind energy company Infigen Energy (ASX: IFN) receiving a takeover bid from UAC Energy (which is ultimately backed by Philippines-based Ayala Corp) after UAC launched a raid to secure as much as 17% of the company. Ultimately, UAC was only able to acquire 12.82% of IFN which was enough for it to be willing to bid for the remaining shares at 80c per share. Given the reluctance of institutions to sell at 80c, there is scope for UAC to raise its offer to reach the 50.1% it is likely after at a minimum, and until UAC has amassed a blocking stake this bid could stir up other bidders, thus we believe this is an enticing opportunity.

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