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 June 2020
Both the Australian and US equity markets have ended the 2020 financial year with gains, albeit the pace of the rally is slowing somewhat from that of April and May. For June, the ASX200 Accumulation Index closed 2.64% higher, while in the US, the S&P500 added 1.99%. It is important to note, however, that the Nasdaq100, which is heavily focused on technology stocks, continues to strongly outperform the broader S&P500, as it added 6.29% for June.
We noted in our update last month that it is “important to remember that while economic data is backwards-looking, equity prices are forward-looking, meaning all the bad news released is already priced in. More so, equities will rally well before the economic news turns around”. While we stand by this statement, it is almost now as if the market is ignoring worsening news as it relates to the spread of Covid-19. At the global level, following a lull throughout May, June has witnessed the number of daily confirmed cases reach new highs, surpassing the previous peak from April. While the US itself has experienced this trajectory, it is the spread in less developed countries, such as in South America, South Africa, and India, which is now the focus. Nevertheless, it does highlight the point that in the short-term, the link between equity market performance and the underlying economy can be tenuous at times.
Rivkin offers four different portfolio options for SMA investors; two of these, the ‘Smart Growth’ and ‘Defensive Income’ are focused on ASX investments. For June, Smart Growth returned 2.21%, while Defensive Income returned 1.39%, both net of fees. As a reminder, 50% of the Smart Growth portfolio is allocated to the ASX Momentum strategy, and 50% to the ASX Value strategy. In a reversal of the prior month, it was the ASX Momentum strategy, which was the better performer in June, gaining 3.01%, compared to the ASX Value Strategy, which gained 1.42%. The ASX Income strategy, which makes up the bulk of the Defensive Income portfolio gained 1.38% for June. For those investors in this portfolio, be aware that many of the Blue-Chip stocks are due to go ex-dividend in August and early September.
Momentum in the US is also coming back to life after spending some months in cash as markets sold off aggressively between February and March. For June, the US Momentum strategy rallied 4.55%, while US Value was down slightly by -0.44%. US Momentum was boosted by substantial gains in Zoom (ZM), Tesla (TSLA), and DocuSign (DOCU), which gained 41.3%, 29.3%, and 23.2% respectively for the month.
The continued strength of the Australian dollar relative to the US dollar, which gained 3.54% for June has detracted from the performance of both US strategies. However, we wish to stress that although the AUD has rallied sharply over the past three and a half months, we do not believe there is a long-term structural reasoning why this strength will continue over the long-term. Our research has shown that the Australian dollar is very cyclical, partly evidenced by the fact that prices have traded both above and below the current level around US$0.70 multiple times over the past 20 years.
What is more important is the correlation. As an Australian holding a US equity portfolio, we are ‘effectively short’ the AUDUSD, meaning a lower AUD benefits us while a higher AUD detracts. Since 2000, the correlation between the AUDUSD and S&P500 is 0.55, which is mildly positive. Put simply, when the S&P500 falls, so does the AUDUSD, while when the S&P500 rallies, so does the AUDUSD. This means that having an unhedged portfolio, like we do with both the US Momentum and US Value strategies will be less volatile over the long run than a hedged portfolio.
Finally, the Capital Stable portfolio declined slightly throughout the month, falling by -0.57%, again partly attributed to a stronger AUDUSD rate. The ETFs which provide us with exposure to the AUD gold price (0.04%), cash (0.08%), and bonds (0.30%) posted minor gains, while IVV, which gives us unhedged exposure to the S&P500 declined by 2.35%.
Looking to the weeks and months ahead, we again believe that a period of sideways trading is not out of the question given the sharp rebound we have already experienced off the March lows, particularly in the US, which has run harder than the ASX200.
All performance data presented in this document relates only to the start date of the SMA portfolios on June 12. The performance below refers to the model portfolios, so 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.
