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 May 2022

The first five months of 2022 have been a challenging environment for equity investors. Volatility remains elevated, with price weakness remaining the dominant theme. In Australia, the ASX200 Accumulation Index declined 2.6% for the month, while in the US, the Nasdaq100 closed 1.7% lower, while the broader S&P500 was flat. We continue to see a large discrepancy across various parts of the market, with current economic conditions providing strong headwinds for certain sectors, while benefitting others. In the US, consumer stocks, both discretionary (-4.9%) and staples (-4.7%) were sold off in May, as was real estate (-5.1%), while the energy sector (+15.0%) continues to benefit from higher oil and gas prices. In Australia, the selling was broader-based, with only the materials sector (+0.1%) closing higher, albeit just. In times like this, it is important to remember that investor sentiment is often at its most pessimistic at market bottoms, often shaking out investors at just the wrong time. While we will only know in hindsight that a major low has formed, we believe that the risks are now turning back towards higher levels for equities into the end of the year.

Fear of both lower growth and higher inflation remained present in May, although there are early signs that inflation may have peaked and begin to trend lower over the latter half of 2022. While supply chains remain disrupted, the relaxation of COVID-19 restrictions in China is expected to ease disruptions going forward. For the year to April, U.S. consumer price inflation retreated from 8.6% to 8.3% and is forecast to moderate further in May to 8.2%. During the month of May, hopes for a less aggressive tightening stance by the Federal Reserve rose, however strong employment figures for May, with 390k jobs along with consumer spending remaining robust, the Federal Reserve is set to continue aggressively tightening monetary policy until inflation begins to trend substantially lower. Domestically, the Reserve Bank of Australia continues to tighten, announcing a 0.50% increase to bring the cash rate to 0.85% on Tuesday.

Talk of recession has increased in recent weeks, however most U.S. economists believe a recession will be avoided and the Federal Reserve will be able to engineer a “soft landing”, with current forecasts implying a 30% chance of a recession in the coming year. Still, concerns of a stagflationary environment, characterized by high inflation and low growth, are likely to remain present in the coming months highlighted by the recent weaking of PMI and consumer sentiment reports that foreshadows slowing growth.

Looking to the corporate sector, analysts are yet to meaningfully lower earnings forecasts for the coming quarters, which remain little changed although guidance from companies is beginning to suggest this is a growing probability. Recent weakness in equity markets has seen much of the excess from 2021 withdrawn, highlighted by both the S&P500 and ASX200 trading on forward P/E multiples of 17.28 and 13.97 respectively, down from highs of 23 and 21 in 2021, more in line with historical averages.

To the performance of the portfolios, and Rivkin offers four options on the Mainstream Self-Managed Account (SMA) platform, being ASX Growth, ASX Income, US Growth, and Low Volatility. Regarding the Australian focused portfolios, ASX Income continues to hold up well in a weak market, declining just 1.61%, net of fees, for the month. Growth stocks however remain under pressure, with the ASX Growth portfolio declining 6.09%, net of fees, in May. US Growth gained 0.42%, net of fees, despite a stronger Australian dollar, which gained 1.7% for the month. Lastly, the low volatility portfolio declined 2.36% in May, net of fees.

The ASX Growth portfolio continues to face headwinds from rising interest rates, with Quality stocks in particular continuing to sell off as investors readjust their valuations and growth forecasts. The largest detractors from the portfolio were James Hardie (JHX), Pro Medicus (PME), and IDP Education (IEL), which all declined over 10% for the month. The Momentum strategy benefitted from several commodity holdings, with Worley (WOR, +6.0%) and South32 (S32, +4.8%), the best performers.

Regarding ASX Income, several of our Blue-Chip holdings paid out dividends over the course of the month, providing somewhat of a buffer to the volatility in equity prices. As of month end, one stock was changed in this component of the portfolio, with Rio Tinto (RIO) replacing South32 (S32). From ASX Events, while broader market volatility continued throughout May, the Event holdings have, until now, been largely immune. We have seen the first wobble with one of our holdings as the bidder for Link (LNK) has seen its share price drop 60% since it launched its bid, and there is concern it may have lost its appetite to complete the deal. While it has a legal commitment to the offer, it may ultimately weigh up whether the risk of being sued is less concerning than wiggling free from a deal that may saddle the group with excessive debt in a rising interest rate environment. We have adjusted the holding to a half-weight to take the added risk into account. Otherwise, activity has been strong which is encouraging for the future, and we have some names in the watchlist we hope to buy throughout June.

The US Growth portfolio remains in a somewhat defensive stance, with the Momentum component current comprised of three ETFs, comprised of short-dated bonds, gold, and the US Dollar Index, as opposed to the usual top seven momentum stocks. This is a quantitative switch that we initiate from the broader trend in the S&P500 turns down and aims to limit the depth of any drawdown. We continue to hold the US Quality stocks throughout all market cycles, with Conocophillips (COP, +18.2%) and Amgen (AMGN, +11.0%) the top performers in May.

Finally, regarding the Low Volatility portfolio, the portfolio was negatively impacted due to weakness across most asset classes held. The current economic climate has seen bonds, equities, and gold become more correlated, whereas in more normal conditions, we tend to see a negative correlation between these asset classes. The Gold ETF (GOLD) declined 3.30% for the month, partly a result of the stronger Aussie dollar. Within the equity’s allocation, the three ETFs held declined between 2.7% to 3.1%, while bonds were also softer. From the 25% of the portfolio that we allocate to either cash or ASX Events, we did open a new event opportunity during the month in MyDeal.com.au (MYD). While the Low Volatility portfolio is down 4.8% over the past six months, the decline remains within our range of expectations.

With Rivkin celebrating 25 years of business this month, we have been through plenty of market cycles. And while one is never the same as the last, we know that every bear market eventually exhausts, giving way to a broader uptrend. More so, it is often towards the end of a bear market that sentiment is at its worst. Given much of what has been driving prices so far in 2022 is now well known, we feel that a large portion of this economic change has already been priced in, making the risks now to the upside.

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