Elston Australian Large Companies A aims to outperform the S&P/ASX 100 Accumulation Index by 2.0% p.a. (after fees) over rolling five-year periods. This is an actively managed portfolio of predominantly Australian equities. In general, the portfolio will have a long-term average exposure of around 97% in growth assets and 3% in defensive assets, however the allocations will be actively managed within the allowable asset allocation ranges depending on market conditions.
After a relatively benign few months, volatility returned in the third quarter of 2023. The outlook for interest rates was (once again) the primary cause, with the U.S. Federal Reserve now guiding that interest rates will likely need to remain higher for longer than previously anticipated. In part, this relates to inflation, which continues to sit well above the Federal Reserve’s target. In this regard, recent strength in the oil price has not helped sentiment, although it is worth noting that both headline and core inflation numbers have moderated significantly from their post-COVID highs. More broadly, however, this further reflects expectations that the real interest rate required to keep the economy balanced is probably higher than previously thought, given resilient economic data of late. In addition, concerns around fiscal discipline in the U.S., given another narrowly averted debt ceiling crisis, has exacerbated the upward pressure on interest rates (with many now focused on the magnitude of additional debt needing to be issued in order to fund the increasing U.S. budget deficit).
The impact on financial markets was most pronounced through surging longer term bond yields. The Australian and U.S. Government 10-year bond yields, for instance, closed the quarter just shy of 4.5% and 4.6% respectively, their highest level in more than 12 years. This has implications for share market investors, both in terms of the potential impact on economic growth and corporate profitability that higher rates bring, but also given how investors fundamentally value these assets, with the value of future earnings being worth less in today’s dollars, in a higher interest rate environment.
With this, the Australian share market more than erased earlier gains, to close the quarter slightly down. Pleasingly, however, the Australian companies in the portfolio delivered a positive contribution, in aggregate, buoyed by an encouraging annual reporting season. Notably, outperformance was quite broad, with AMP, Carsales.com, Cochlear and Worley delivering strong results, reflecting good momentum in executing their strategy. ANZ and Virgin Money UK also enjoyed a strong quarter, the latter as it passed a key regulatory standard (i.e., a “stress test”) and commenced a sizeable buyback of its shares. Treasury Wines saw improved sentiment amid resilient earnings and hopes of positive developments regarding Chinese tariffs levied on Australian wine, while Woodside and Santos benefited from stronger energy prices. By contrast, slower than expected margin recovery in CSL’s plasma business weighed on the company’s share price, while cost inflation and regulatory issues continue to see poor sentiment toward Endeavour. New portfolio addition, ResMed, also struggled due to weaker margins and concerns over the potential impact on demand from weight loss injection, Ozempic. That said, while these are fierce headwinds, ResMed is a quality business, in our view, which we are buying at a compelling price.
Looking forward, it remains an uncertain investment environment, with investors facing the increased likelihood of a prolonged period of higher interest rates, not to mention elevated geopolitical risk. This potentially sets the scene for further volatility, particularly when coupled with pockets of overvaluation in the Australian share market. Nonetheless, we continue to find attractive investment opportunities and believe that the portfolio is appropriately positioned to achieve its longer-term objective.
What is Elston Australian Large Companies A Elston Australian Large Companies A is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Large Cap Neutral Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Elston Australian Large Companies A has Assets Under Management of 0.00 M with a management fee of 0.33%, a performance fee of 0.00% and a buy/sell spread fee of 0.5%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Elston Australian Large Companies A has returned 1.77% in the last month. The previous three years have returned 7.35% annualised and 17.63% each year since inception, which is when the Elston Australian Large Companies A first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Elston Australian Large Companies A first started, the Sharpe ratio is NA with an annualised volatility of 17.63%. The maximum drawdown of the investment product in the last 12 months is -5.71% and -31.51% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Elston Australian Large Companies A has a 12-month excess return when compared to the Domestic Equity - Large Cap Neutral Index of -4.9% and -0.41% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Elston Australian Large Companies A has produced Alpha over the Domestic Equity - Large Cap Neutral Index of NA% in the last 12 months and NA% since inception.
What are similar investment products?
For a full list of investment products in the Domestic Equity - Large Cap Neutral Index category, you can click here for the Peer Investment Report.
What level of diversification will Elston Australian Large Companies A provide?
Elston Australian Large Companies A has a correlation coefficient of 0.95 and a beta of 1.04 when compared to the Domestic Equity - Large Cap Neutral Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Elston Australian Large Companies A and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Elston Australian Large Companies A with the ASX Index 200 Index?
For a full quantitative report on Elston Australian Large Companies A compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the Elston Australian Large Companies A to do my own analysis?
To sort and compare the Elston Australian Large Companies A financial metrics, please refer to the table above.
Has the Elston Australian Large Companies A been independently verified by SMSF Mate?
This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
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Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Elston Australian Large Companies A. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 − The S&P/ASX 300 Accumulation Index returned -0.8% and the MSCI ACWI Ex Australia NR Index (A$) +1.2%.
− In fixed income, the Bloomberg AusBond Composite 0-5Yr TR Index returned +0.7% and the Bloomberg Global Aggregate TR Hedged Index -0.3%.
− The A$ declined -3.9% to $0.648.
− Within the Australian equities, the strongest sector performers were Consumer Discretionary (+6.5%), Real Estate (+3.1%) and Energy (+0.2%) while Utilities (-3.8%), Information Technology (-3.3%) and Consumer Staples (-3.2%) were the weakest performers. Large Caps (S&P/ASX 100) -0.7% outperformed Small Caps (S&P/ASX Small Ordinaries) -1.3%.
− Within the International equities, North America (MSCI North America AUD) +2.1% outperformed Europe (MSCI Europe AUD) -0.1% while Developed Markets (MSCI World AUD) +1.6% outperformed Emerging Markets (MSCI EM AUD) -2.4%.
Performance Commentary - July 31, 2023 − The S&P/ASX 300 Accumulation Index returned +2.9% and the MSCI ACWI Ex Australia NR Index (A$) +2.4%.
− In fixed income, the Bloomberg AusBond Composite 0-5Yr TR Index returned +0.7% and the Bloomberg Global Aggregate TR Hedged Index -0.0%.
− The A$ rose +1.2% to $0.674.
− Within the Australian equities, the strongest sector performers were Energy (+8.8%), Financials (+4.9%) and Information Technology (+4.9%) while Consumer Staples (-1.9%), Health Care (-1.6%) and Materials (+1.6%) were the weakest performers. Large Caps (S&P/ASX 100) +2.8% underperformed Small Caps (S&P/ASX Small Ordinaries) +3.5%.
− Within the International equities, North America (MSCI North America AUD) +2.1% outperformed Europe (MSCI Europe AUD) +1.8% while Developed Markets (MSCI World AUD) +2.1% underperformed Emerging Markets (MSCI EM AUD) +4.9%.
Performance Commentary - June 30, 2023 The second quarter of 2023 was much more benign than the first, with concerns around the U.S. regional banking crisis giving way to a stronger period for global share markets. In part, this reflects surging sentiment behind the artificial intelligence theme, while investors have also taken further encouragement from solid employment data, relatively resilient corporate earnings, and expectations that we are largely through the interest rate hiking cycle, in hoping that a recession may be avoided or, at the very least, be much more muted than what had been previously feared. Time will tell if this positive sentiment proves premature. Inflation, while moderating in some countries, continues to soar in others (for example, the U.K.).
Regardless, it remains above acceptable levels, suggesting that higher interest rates may be with us for some time yet, which, in turn, raises the prospect of lower economic growth moving forward.
The portfolio delivered a positive return this quarter, although slightly underperformed its benchmark. Our overweight position in James Hardie added value, as the manufacturer of building products delivered a resilient quarterly update. Being overweight engineering and construction services provider, Worley, and supply-chain logistics company, Brambles, also added value, as they delivered positive updates around the continued shift in their business mix toward more sustainable projects and their recovery from COVID headwinds, respectively. Virgin Money benefited from abating concerns around the U.S. banking sector, while holding a lower weighting to BHP (than the index) added relative value, with the stock falling in response to weak Chinese economic data.
By contrast, Amcor, Endeavour, a2 Milk and Treasury Wines are all experiencing challenging operating conditions which weighed on sentiment, during the quarter. IDP also detracted (see below), while private hospital operator, Ramsay, underperformed, with cost pressures impacting earnings. Despite being a relatively small part of the Australian market, not holding any technology stocks (notably Wisetech and Xero) impacted returns compared to benchmark, as the sector soared amid buoyant global sentiment.
There were two key additions to the portfolio this quarter, in IDP Education and Aurizon. IDP Education is a leading provider of student placement and English language testing services, being a one-stop shop for international students looking to gain a student visa and study abroad. The timing of our purchase was somewhat unfortunate, however, with confirmation shortly after that a competitor’s English tests have also been approved for use by those seeking a Canadian student visa, leading to weakness in the stock. While this is disappointing, the long-term investment case for the company remains strong, as we look for growing revenues and market share, primarily via Indian student demand.
Aurizon owns and operates rail infrastructure and provides haulage services for coal and bulk commodities nationally. Aurizon is a high cash flow generating business, which underpins their attractive dividend. In addition, the company’s bulk business is well positioned to benefit from the structural demand for future facing commodities such as lithium, copper and nickel. These trades were funded by selling Lendlease and trimming several holdings.
Performance Commentary - December 31, 2022 There were no Portfolio changes during the month.
The model portfolio (-2.8%) outperformed its benchmark (-3.2%) with stock selection adding to relative performance while sector positioning detracted from it.
From a sector perspective being underweight Materials and overweight Consumer Discretionary were the largest detractors from relative performance. In terms of stock selection, positive contributions were driven primarily from positions within the Consumer Staples, Financials and Real Estate sectors, partially offset by positions within the Materials and Information Technology sectors.
The top three contributors to relative performance were the positions in A2 Milk (+0.4%) & Virgin Money (+0.3%) and from not owning Commonwealth Bank (+0.2%). The largest detractors were Aristocrat (-0.3%) & Flight Centre (-0.2%) and the underweight position in BHP (-0.2%).
The largest overweight positions relative to the benchmark based on average weighting during the month were Amcor (+3.5%), Endeavour Group (+3.4%) and Cochlear Limited (+3.4%). The largest underweights were due to not owning Commonwealth Bank (-9.2%) or National Australia Bank (-5.0%) and from being underweight BHP (-6.9%).
Performance Commentary - November 30, 2022 Portfolio changes saw the inclusion of Mirvac (ASX: MGR) and the sale of the Vaneck Australian Property ETF (MVA). The weightings to WiseTech, Worley, Virgin Money, Lendlease, Flight Centre, AMP and A2 Milk were also reduced.
The model portfolio (+3.55%) underperformed its benchmark (+6.7%) with both sector positioning and stock selection detracting from performance.
From a sector allocation perspective being underweight Materials was a substantial detractor from relative performance, only partially offset by the underweight to Financials. In terms of stock selection, positive contributions from positions within the Financials and Health Care sectors were more than offset by positions within the Materials and Real Estate sectors.
The top three contributors to relative performance were the position in Virgin Money UK (+0.5%) and from not owning National Australia Bank (+0.4%) or Commonwealth Bank (+0.4%). The largest detractors were James Hardie (-0.6%), Lendlease (-0.5%) and the underweight position in BHP (-0.4%).
The largest overweight positions relative to the benchmark based on average weighting during the month were Endeavour Group (+3.6%), Treasury Wine Estates (+3.6%) and Cochlear Limited (+3.6%). The largest underweights were due to not owning Commonwealth Bank (-9.3%) or National Australia Bank (-5.8%) and from being underweight BHP (-6.1%).
Performance Commentary - October 31, 2022 − Portfolio changes for the month were limited to reducing the weighting of Brambles (BXB.ASX) by -0.5% and increasing Lottery Corporation (TLC.ASX) by +0.5%.
− The model portfolio (+5.7%) marginally underperformed its benchmark (+5.9%) due to sector positioning.
− From a sector allocation perspective, positive contributions from being underweight Materials and overweight Energy were more than offset from being underweight Financials and overweight Consumer Staples. Stock selection was positive across all sectors except the Communication Services, Industrials and Real Estate sectors.
− The top three contributors to relative performance were from the underweight position in BHP (+0.5%) and holdings in Flight Centre (+0.3%) and CSL (+0.3%). The largest detractors were the position in a2 Milk Company (-0.2%) and from not owning Commonwealth Bank (-0.8%) and National Australia (-0.4%).
− The largest overweight positions relative to the benchmark based on average weighting during the month were Endeavour Group (+3.6%), Treasury Wine Estates (+3.6%) and Cochlear Limited (+3.6%). The largest underweights were due to not owning Commonwealth Bank (-9.1%) or National Australia Bank (-5.3%) and from being underweight BHP (-6.1%).
Performance Commentary - September 30, 2022 − Portfolio changes for the month were limited to reducing the weighting of Amcor (AMC.ASX) by -0.5% and increasing Ramsay Health Care (RHC.ASX) by +0.5%.
− The model portfolio (-6.1%) underperformed its benchmark (-5.7%), with stock selection and sector allocation detracting from relative performance.
− From a sector allocation perspective, positive contributions from being overweight Energy and underweight Utilities was more than offset by the underweight Materials and overweight Real Estate positioning. From a stock selection perspective, positive contributions from holdings within the Consumer Staples and Industrial sectors were not enough to offset the drag from holdings in the Energy, Health Care and Materials sectors.
− The top three contributors to relative performers were from not owning Goodman Group (+0.2%), Transurban (+0.1%) or Commonwealth Bank (+0.1%). The largest detractors were positions in Flight Centre (-0.5%), BHP (-0.4%) and Virgin Money (-0.4%).
− The largest overweight positions relative to the benchmark based on average weighting during the month were Amcor (+3.8%), Endeavour Group (+3.5%) and Treasury Wine Estates (+3.5%). The largest underweights were due to not owning Commonwealth Bank (-8.8%) or National Australia Bank (-5.2%) and from being underweight BHP (-5.7%).
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