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 April 2022

With market volatility remaining elevated, 2022 continues to be a challenging year for equity investors. April saw heightened volatility across a variety of risk assets as concerns of a combined slowdown in global growth coupled with inflation at multi-decade highs continues to prompt fears of a stagflationary environment. On the growth front, while we are yet to see any of the large, developed economies enter an official recession, global economic growth is clearly slowing. In April, the International Monetary Fund (IMF) cut its 2022 global growth forecast for the second time this year, from 4.4% down to 3.6%. More recently, GDP data for the US in the first quarter showed a contraction of 1.4% annualised, significantly below expectations, which was for a 1.0% rise.

In addition, we have seen an increase in inflationary pressures both in Australia and globally. This is partly a consequence of central banks’ quantitative easing to support their’ economies through Covid-19, exacerbated by supply side bottlenecks of raw materials and manufacturing inputs. The recent figures for March show that headline CPI in Australia is increasing at a rate of 5.1% per year, the highest in two decades. The outlook for inflation is noticeably worse in the US, with the latest CPI figures at 8.5% year on year.

One of the flow-on effects of higher inflation is typically higher interest rates. To highlight this point, the last time inflation in Australia was above 5% was in June 2001, at which time the RBA cash rate was 5.0%. While central banks have been slow to lift official cash rates this time around, bond yields have rallied sharply for the past six months, with the yield on the Australian 10-year note moving above 3.5%. In Australia, it has taken until this month for the RBA to react, lifting the cash rate 25 basis points to 0.35%, the first upward shift in eleven years. Higher interest rates typically curb economic activity as the ability to borrow and service debt decreases. More so, higher interest rates reduce the current valuations of growth companies as future cash flows are discounted back to a present value at a higher rate.

This has largely overshadowed what has been a relatively positive earnings season for U.S. equities which is now reaching its conclusion. Of the 436 companies which have so far reported, 78% have beaten earnings estimates by an average of +4% with 67% also surpassing revenue estimates by an average of +2.3%. Looking ahead earnings are expected to continue to grow over the remainder of the year, forecast to rise +14.4% in Q2, +6.5% in Q3, and +2.2% in Q4.

Regarding the performance of the broader indices, in the US, the strong rally in March was more than completely reversed in April, with the S&P500 declining 8.8%, while the Nasdaq100 fell 13.4%. Australian equities held up relatively well, with the ASX200 Accumulation Index down 0.85%. The large divergence is partly explained by the large weighting to technology stocks in the US, which have been more sensitive to the increase in yields than other stocks, such as resources and financials, which dominate the market capitalisation of the ASX200.

To the performance of the portfolios, and Rivkin offers four options on the Mainstream Self-Managed Account (SMA) platform, being ASX Growth, US Growth, ASX Income, and Low Volatility. Regarding the Australian-focused portfolios, ASX Growth declined -4.91% during April, net of fees, while ASX Income declined -1.07%, net of fees. With ASX Growth, much of the losses were attributed to the Quality stocks, with IDP Education (IEL, -14.9%), Hub24 (HUB, -11.5%), and Wisetech Global (WTC, -11.4%) the largest detractors. Much of these losses are simply the result of valuations coming down, as interest rates rise, more than a significant deterioration in underlying business conditions. While the Momentum component held up relatively better, with Origin Energy (ORG, +9.8%) the top performer.

Regarding ASX Income, the portfolio moved much more in line with the broader market, with resources stocks the worst performers, with BHP Group (BHP) and South 32 (S32) down 9.4% and 7.2% respectively. Within ‘ASX Events’, the strategy continued to do its thing, with an increased offer for our Western Areas (WSA) investment, up 5.8% for the month, and completion of our investment in Z Energy (ZEL). We have bought two new positions in Virtus Health (VRT) and Big River Gold (BRV), while we switched from our Crown (CWN) position into the CWN hybrids (CWNHB) with the view that the downside is lower if the unexpected occurs and the deal falls over. There are a few stocks on the watchlist that we hope to enter in May.

The US Growth portfolio ended April -2.68% lower, net of fees, helped partly by a weaker Australian dollar (AUD), which fell -5.7% against the US Dollar. Being a risk currency, it is quite common for the AUD to be correlated with stocks, meaning they often fall together. This is beneficial, as it dampens the return of US equities in AUD terms. Looking at the stocks, much of the portfolio was lower, with Target (TGT) bucking the trend to rally 7.7%, while NVIDIA (NVDA) was the biggest decliner, down -32.0% on disappointing earnings. We have made the decision to raise approximately 20% cash within this portfolio as a defensive measure.

Finally, the Low Volatility portfolio declined by -0.16%, net of fees, taking the return for the year to date to -2.42%. While this portfolio has been trending lower in 2022, the depth of the current drawdown is well in line with how it has performed historically. In April, both equities and bonds were lower, with the ETFs held declining around 2-3%, while the Australian dollar gold price rallied 3.7%. Again, the unhedged nature of the equities and gold exposure limited the losses.

All performance data presented in this document relates only to the start date of the SMA portfolios, being June 2019 for ASX Income and Low Volatility and July 2021 for ASX Growth and US Growth. The performance below refers to the model portfolios, net of both management and performance fees, which will not match exactly everyone’s account while providing an accurate representation.

Please use the investor portal or call us to check your account-specific performance.

*Past performance is not indicative of future performance. The inception date for ASX Growth and US Growth is 1 July 2021. Low Volatility and ASX income inception date is 12 June 2019

The above table shows the returns of each portfolio, being ASX Growth, US Growth, ASX Income, and Low Volatility, 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 account’s performance.

Please note that we don’t have historical data for the ASX and US Growth portfolios, as were included in the SMA offering from 1 July 2021 whereas ASX Income and Low Volatility remain unchanged.

For those interested in the historical performance of the individual strategies, please click here

*Past performance is not indicative of future performance. The inception date for ASX Growth and US Growth is 1 July 2021. Low Volatility and ASX income inception date is 12 June 2019.

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.

*$70,000 for US Growth

**5.0% for Low Volatility

****1.0% for Low Volatility

The PDS and target market determination can be obtained by calling 02 8302 3600 or visiting our website.

This information has been prepared and issued by Rivkin Securities Pty Ltd (ABN: 87123290602, AFSL: 332 802).

Important Notice: Please consider your own financial situation before investing in our products. Rivkin does not provide personal financial advice and does not take anyone’s personal financial situation into account when structuring its model portfolios.

Past performance and/or backtesting 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.

The Trust Company (RE Services) Limited (ABN 45 003 278 831, AFSL 235150) (part of Perpetual Group ABN 45 003 278 831 AFSL No 235150) is the responsible entity and the issuer of units in the Mainstream Separately Managed account. It is general information only and is not intended to provide you with financial advice, and has been prepared without taking into account your objectives, financial situation or needs. You should consider the product disclosure statement, available on www.rivkin.com.au, prior to making any investment decisions. If you require financial advice that takes into account your personal objectives, financial situation or needs, you should consult your licensed or authorised financial adviser. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.

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. 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.

PERPETUAL BEING THE ISSUER AND RESPONSIBLE ENTITY UNDER The Trust Company (RE Services) Limited (Perpetual, Responsible Entity, RE, we, us or our), part of the Perpetual Group ABN 45 003 278 831 AFSL No 235150