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.
28 February 2021 Equivalent Unit Price – A$0.9955
Welcome investors to the monthly update for the Rivkin Australian Defensive Income Strategy (RADIS) for February 2021. For the month of February, the RADIS gained 0.90%, with the Equivalent Unit Price ending the month at 0.9955.
| PORTFOLIOS | RADIS |
|---|---|
| Latest Month | 0.90% |
| QTD | 0.79% |
| Calendar YTD | 0.79% |
| Financial YTD | 8.20% |
| 12m | 1.55% |
| Inception | -0.45% |
Monthly Commentary
Equity markets were somewhat choppy through February and followed a similar path as what occurred in January, that being initial gains being negated by a swift sell-off into the end of the month. The ASX200 closed at the end of February at 6673.29, up 1.45%. While in the US, equities also sold off into month end, with the S&P500 closing at 3811.15 (+2.61%), after reaching a new all-time closing high of 3,934.83 mid-month. Technology stocks sold off more aggressively, evidenced by the performance of the Nasdaq100, which closed 0.12% lower in February, some 6.5% lower than the closing high for the month. For the month of February, the RADIS gained 0.90%, with the Equivalent Unit Price ending the month at 0.9955.
It was not just technology stocks, but ‘growth stocks’ in general which suffered the most through February. This was partially due to the recent surge in bond yields (interest rates), with the yield on the US 10-year bond gaining 33.6% in February, ending the month at 1.46%. While the level itself is not overly concerning, it is more the speed of the change that has caught some off guard. At current levels, the yield on the US 10-year bond has returned to pre-COVID-19 levels. The move higher in yields has been driven partially by increasing inflation expectations, which has been showing itself in higher commodity prices such as oil and copper. The link to equities is twofold, firstly as interest rates rise the cost of debt financing increases, and secondly, the effect on valuations decreases, as the discount rate used in discounting future cash flows is now higher. This tends to impact growth companies to a much higher degree compared to more defensive companies, such as banks, insurers, and telecommunication companies. All in all, however, we do not believe that current interest rate levels pose a significant problem for the broader economy, and more so, we believe that any surge in inflation is likely to be transitory until economies are weaned off government stimulus.
In terms of the current composition of the portfolio, we continue to hold a relatively high amount of cash at 26.3%, because of the current lack of ‘event’ style opportunities at present. We closed out an event in Coca-Cola Amatil (CCL) during the month which we had initiated back in November. This was a takeover arbitrage, in which we enter a position following an initial takeover offer, where the market price is trading at a discount to the offer price. In this case, the bidding company Coca-Cola European Partners (CCEP) eventually increased their bid to $13.50 a share. Instead of waiting for the deal to conclude, which could take up until May, we elected to sell the shares on market, receiving $13.38, a healthy 5.9% gain from our entry price of $12.63 over a three-month period.
Regarding the Blue Chips strategy, which as a reminder holds the top 10 dividend paying stocks from the ASX50, this strategy has held up quite well relative to the broader market, thanks to its exposure to more defensive type companies. As of the end of February, a re-balance of this strategy was required, which involved replacing Woodside Petroleum (WPL) and BHP (BHP) with Dexus (DXS) and Coles Group (COL).
The Low Volatility component of the portfolio, which holds three broad ETFs, being the S&P500, Bonds, and Gold weighed on the performance somewhat this month, due largely to a decline in gold and bond prices.
Please see the tables below for full details regarding our sector exposure, and top 10 holdings.
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
| STOCK | TICKER | STRATEGY | WEIGHT |
| iShares S&P500 ETF | IVV | Low Volatility | 7.07% |
| Vanguard Aust. Fixed Interest ETF | VAF | Low Volatility | 6.63% |
| Fortescue Metals Group | FMG | Blue Chips | 6.60% |
| BHP | BHP | Blue Chips | 6.14% |
| Rio Tinto | RIO | Blue Chips | 6.00% |
| GOLD ETF | GOLD | Low Volatility | 5.82% |
| Vitalharvest Freehold | VTH | Events | 5.29% |
| Woodside Petroleum | WPL | Blue Chips | 5.10% |
| Telstra | TLS | Blue Chips | 4.96% |
| Medibank Private | MPL | Blue Chips | 4.67% |
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
