Investment Portfolio Highlights
Australian market either represented by large caps in the ASX 200 or the broader market All Ord Index has traditionally has been heavily dominated by resources, banks and in the near future energy sector. We always prefer a globally diversified portfolio beyond the above 3 sectors due to better valuation, growth and investment opportunities.
Short term tactical portfolio allocation has been leaning heavily back to resources and energy. This is partly due to underperformance of the sector where relative value can be found vs broader defensive sectors and derisking of some specific producers where majority of the capital expenditure risk has been eliminated and production is on the ramp up stage.
The way we construct our own portfolio is to focus on strong dividend shares so we have income immediately while maintain favourable growth upside.
The companies listed below does not take into account individuals own risk parameters and are not recommendations. It is a list of top shares we own in our investment portfolio.
Top 10 Australian Shares
Rio Tinto – diversified commodity exposure especially iron ore (lowest cost producer globally). Iron Ore looks like putting in a short/medium term bottom whilst with a high degree of volatility. It also has a large degree of Copper exposure which we see favorable fundamentals in the medium term.
The recovery in commodity prices is reinforced by the FX market where the Australian dollar to US dollar forecast is looking very positive.
Challenger Financial – Leveraging growth in superannuation sector and demographics with monopoly position in annuities. Challenger is a play in the changing demographics where increase number of retirees is increasing the addressable market for its primary product, annuities.
Most recent earnings reinforce the growth story, annuities firing at all cylinders and funds management business showing strong AUM growth.
G8 Education – childcare industry roll up. GEM key agent institutionalizing the sector. Key catalayst for the company will the on ramp of the Federal Government child care payment reform. It would improve revenue certainty for the sector going forward.
GEM share price has recovered in the last 6 month. We are going to off load some portion of our position if the GEM share price keep running up.
Woodside – play on energy with mature LNG production and manageable addon growth pipeline. A slow mover and long term hold in our portfolio.
Origin – One of our largest position in the portfolio. ORG is ramping up of global LNG export and key beneficiary of shifting secular demand of cleaner base load energy in Asia away from coal.
Positive risk reward post capital raise. The reorganizing capital structure shored up the balance sheet. Oil price recovery has stabilized the outlook in the near term.
LNG export ramping up in 2016 will support debt service coverage going forward.
Woolworths – domestic Australian consumption (laggard so far in the portfolio). We are questioning the long term position in the portfolio given the current headwind. The new CEO need to implement much needed changes in turning around same store sales growth.
It is the largest percentage loss in all of our positions. There is a lot of things WOW management need to deal including recovering the trust of shoppers, catch up to Coles on comparable sales and fend off Aldi in South Australia and Western Australia.
We have added more for a short term bounce but keeping a eye for continue signs of deterioration or recovery.
Crown – tourism and Macau gaming recovery. Macau looking more positive month by month, especially with the slowing decline in gaming revenue in take.
CWN benefit from continue weakness of AUD. Upside catalyst is the continue weak Australia dollar driving international and domestic tourism spend at its flag ship Casino in Melbourne and Perth.
Key risk here is if the Chinese government clamp down on capital outflow.
Lend lease – global construction with focus on urban renewal and US economic growth. Australia residential settlement risk overplay by market. 1H 2016 results shows residential settlement risk is non existent.
Current strategy is working. The business is spending large amount of cash to get the development off the ground. Major increase in profits fro 2017 on wards.
Mirvac – Similar to Lend Lease where the market has over stated settlement risk in 2016/17. Commercial real estate portfolio ensure steady income flow while residential develop provide upside surprise. Interesting development pipeline along with low gearing make the stock attractive for us.
NextDC – Benefit from shift to cloud computing and move IT spending to capital light structure
QBE – global Property and casualty insurance. QBE has struggled since the GFC where it dealt with legacy issues. On the insurance side, the issues relating to integration of numerous acquisitions and decision on what market it really wants to be in is finally over. Investment income hit by low interest rate environment. Earning will be super charged if global interest rate recovers.
Murray Goulburn Dairy – MGC original thesis based on attractive secular demand for diary. Still on watchlist after disaster earning downgrade.
Sandfire Resources – high risk play on copper with upside risk on price recovery. Removed in early 2016 due to small cap nature and refocus portfolio on large cap diversified miners. Still key commodity miner on watch list.
ANZ – Attractive valuation verses peers and broader regional exposure. While cautious on the banking sector we would add ANZ on any major sell off. We reserve the right to change our mind if the sell off is driven by bank weakness. Moved to watchlist since we have become bearish on Australia housing.
IEM ETF – macro thesis on emerging market recovery. Emerging market has outperformed developed market in 2016. Looks very positive but more attractive single name from above for asset allocation.