Investors Mutual Equity Income offers investors impressively managed Australian equity income underpinned by a robust process. The fund’s dual objectives are to provide a dividend yield (after fees and expenses and before taxes) which exceeds a yield of 2% above that of the S&P/ASX 300 Accumulation Index on a rolling four year basis, whilst maintaining lower levels of volatility relative to the S&P/ASX 300 Accumulation index.
The Equity Income Fund had a disappointing quarter, down -1.3%, lagging the benchmark’s -0.8%. The main reasons for the poor relative performance were a weak quarter by the gaming sector, where we are overweight, as well as disappointing performances by key stocks Charter Hall Retail REIT and Telstra.
Global sharemarkets declined in the September quarter as bond yields rose sharply and investors finally seemed to believe that the Fed and other central banks will keep interest rates ‘higher for longer’. Most markets fell, with the MSCI World Index down -2.4% and the NASDAQ down further, -4.0%, reversing some of its impressive recent gains.
Local markets took a lead from overseas, with the ASX 300 down -0.8 for the quarter. Energy was the strongest sector, buoyed by soaring oil prices, mainly driven by supply cuts from Saudi Arabia and Russia. Healthcare was weakest, dropping -9.0%, as rising 10-year bond yields disproportionately affected its higher valuation multiples.
These factors, as well as Reporting Season, caused an increase in volatility which helped us to capture solid supplementary option income for some of our holdings including CSL, Orica, Steadfast and Woodside Energy. We also earned good dividends from key investments in the Industrial, Financial and Material sectors.
Many of the fund’s holdings performed well over the quarter including NAB, Ampol, Orica, Suncorp and TPG Telecom. Stocks which held back performance included Charter Hall Retail, as explained below, and Telstra which dropped -8.5%, despite posting a strong result, as shareholders reacted negatively to the news it intends to retain its infrastructure business, Infraco. We believe this decision is sensible and in the long-term interests of shareholders.
During the quarter we trimmed our position in IAG as its share price had appreciated significantly, and we added to Sonic, Steadfast and Charter Hall Retail REIT over the quarter on share price weakness
What is Investors Mutual Equity Income Investors Mutual Equity Income is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Derivative Income 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 Investors Mutual Equity Income has Assets Under Management of 560.45 M with a management fee of 0.99%, 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 Investors Mutual Equity Income has returned 0.8% in the last month. The previous three years have returned 8.96% annualised and 10.2% each year since inception, which is when the Investors Mutual Equity Income 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 Investors Mutual Equity Income first started, the Sharpe ratio is NA with an annualised volatility of 10.2%. The maximum drawdown of the investment product in the last 12 months is -3.19% and -35.07% 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 Investors Mutual Equity Income has a 12-month excess return when compared to the Domestic Equity - Derivative Income Index of -2.77% and -0.16% 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. Investors Mutual Equity Income has produced Alpha over the Domestic Equity - Derivative Income 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 - Derivative Income Index category, you can click here for the Peer Investment Report.
What level of diversification will Investors Mutual Equity Income provide? Investors Mutual Equity Income has a correlation coefficient of 0.95 and a beta of 0.94 when compared to the Domestic Equity - Derivative Income 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 Investors Mutual Equity Income and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Investors Mutual Equity Income with the ASX Index 200 Index? For a full quantitative report on Investors Mutual Equity Income compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the Investors Mutual Equity Income to do my own analysis? To sort and compare the Investors Mutual Equity Income financial metrics, please refer to the table above.
Has the Investors Mutual Equity Income 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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Performance Commentary - August 31, 2023 The Fund was down -0.9% in August, in line with the benchmark ASX 300 which was down -0.8%.
Several of our holdings were up strongly after reporting better than expected results, including Brambles, Ampol and TPG Telecom. Telstra posted a strong result but dropped on the news it intends retaining its infrastructure business, Infraco. We believe this decision is sensible and in the long-term interests of shareholders.
We earned good dividend income in August from our investments in the Financials, Materials and Industrials sectors. We also used market fluctuations to generate supplementary option premium around key holdings CSL, Steadfast and TPG.
Reporting season showed that trading conditions remain mixed. Consumer demand is slowing and inflation has reduced, but significant rises in power, insurance and wages mean the RBA can’t be complacent inflation has been tamed. We continue to act cautiously, focusing on industry-leading companies that are likely to perform well in a range of economic conditions.
Performance Commentary - July 31, 2023 The Fund was up +2.0%, though it lagged the benchmark ASX 300 which was very strong, rising +2.9%. The Fund lagged the benchmark partly due to some holdings pulling back after strong recent performances, including Brambles, Aurizon and Telstra. Weaker relative performance was also due to a global rally in more speculative companies.
Orica, Nine, Ampol and Virgin Money all performed well. Aurizon had a poor month, falling -3% after an investor day in Darwin underwhelmed investors on short-term earnings, despite the company detailing a positive long-term growth strategy.
As the market fluctuated ahead of the August reporting season, we generated good supplementary premium by selectively writing options at our targeted entry and exit prices in key stocks such as CSL, Medibank Private, Steadfast and Woodside.
Despite euphoria around a possible ‘soft landing’, many companies face headwinds. Consumer demand is slowing and inflation has reduced, but significant rises in electricity and gas, insurance, and services wages mean inflation must still be contained. We continue to act cautiously, focusing on companies that are likely to perform well in a range of economic conditions.
Performance Commentary - June 30, 2023 The Equity Income Fund had a solid quarter, returning +1.9%, ahead of the benchmark’s +1.0%. This took the Fund to a solid return for the full financial year of +11.1%.
Global markets had a very strong quarter with the MSCI World Index up +6.7%, led by the Nasdaq, +13%. The gains were partly driven by optimism that the rate-rising cycle was near its end, as well as excitement about AI after US chipmaker Nvidia significantly upgraded its forward guidance. This caused a narrow-focused rally, driving markets higher. Implied volatility remained elevated as the market tried to predict the end of the interest rate rising cycle.
The ASX 300 lagged global markets, rising +1.0% for the quarter, as the strong lead from overseas markets was tempered by somewhat unexpected RBA rate hikes which made investors more cautious. Information Technology was by far the strongest sector, rising +18.4% as tech stocks rallied in line with overseas markets. Materials were weaker in line with lower commodity prices and consumer facing sectors also struggled as interest rates continue to bite.
The Fund benefitted from strong performances from Aurizon, as explained below. IAG and Suncorp also were also up significantly amid continuing good trading conditions for the insurance sector. Premiums are increasing significantly, and investment income is benefitting from higher rates. Amcor was disappointing over the quarter, falling after it downgraded its outlook due to food and beverage companies destocking, as well as weakening demand from end customers.
We used share price weakness to increase our positions in Charter Hall Retail REIT and NAB and heightened share prices to trim our position in IAG.
As usual, we selectively used the daily market fluctuations to generate decent supplementary option income around some of our key holdings such as BHP, Coles, IAG and Santos. At the end of the quarter, the Fund earned good distribution income from its core trust investments including APA, Charter Hall Retail and Transurban.
Performance Commentary - May 31, 2023 The Fund was down -1.7% in April, ahead of the benchmark ASX 300, which dropped -2.5%.
Many of our key holdings performed well during the month. Our relative performance was buoyed by low exposure to consumer discretionary retailers, which fell heavily due to the interest rate rise which took some investors by surprise. Aurizon performed strongly, up 4%, continuing its recent rise as haulage volumes improve. Tabcorp also did well, up 9%, as confidence increased in its Victorian licence renewal. Amcor had a poor month falling 8% after it downgraded its outlook due to weakening packaging volumes.
The Fund earned attractive dividend income from several core investments in May as the market fluctuated. We generated good supplementary premium by writing options around some of our holdings including Ampol, Coles, IAG and Orica.
Economies still face significant issues, setting a challenging backdrop for companies. Consumer demand has slowed but is still robust compared to pre-Covid trends. Inflation is proving persistent, with wage gains and house prices ticking up. Further interest rate rises are probable. We continue to act cautiously, focusing on industry-leading companies with strong competitive advantages and recurring earnings that are likely to perform well in a range of economic conditions.
Performance Commentary - April 30, 2023 The Fund was up +2.5% in April, ahead of the benchmark ASX 300, which rose +1.8%.
The main reasons for the Fund’s better relative performance were strong performances by many of our key holdings, as well as a poor month for the large iron ore miners which we remain cautious of due to their cyclicality. IAG, TPG, Orica, Brambles, Telstra and Virgin Money were all up strongly in April. The Lottery Corporation had a disappointing month, dropping slightly after smaller jackpots impacted revenue.
We opportunistically used April’s strong market rally to generate solid option income by writing call options for Coles, Newcrest Mining, Orica and Transurban; and put options at our desired entry prices for APA, BHP and CSL.
The continuing sharemarket strength implies a belief in a painless retreat from high inflation as well as an early easing of interest rates. There are risks to this scenario, with inflation only likely to fall with consumer belt tightening and a rise in unemployment. The companies in the fund are well-established with competitive advantages and recurring earnings, making them more resilient and likely to perform well in a range of different economic conditions.
Performance Commentary - March 31, 2023 The Equity Income Fund performed well over the quarter, +2.8%, slightly lagging the benchmark’s +3.3%.
The MSCI World Index was up +7.2% for the quarter, similar to the prior quarter. However, it has been a more volatile ride. Markets rose strongly at the start of 2023, then fluctuated as investors’ fears about interest rates, inflation and a slowing global economy waxed and waned. Things came to a head in March as a US regional banking crisis unfolded and spread to Europe, then eased as regulators took steps to calm markets.
The ASX 300 lagged global markets, up +3.3%, with mixed performance at a sectoral level. Most sectors were up, with Consumer Discretionary strongest, up +10.8%, driven by investors’ willingness to take on more risk and some strong individual performances followed by Communication Services (up +9.5%) off the back of Telstra’s strong performance. Financial Services was the weakest, down -2.7%, on worries about the unfolding banking crisis and mortgage competition. Real Estate also was down slightly on concerns of falling commercial property values and rising interest rates.
The Fund benefitted from strong performances from Telstra, Brambles, Medibank and The Lottery Corporation after they announced strong first half FY23 results. Sonic Healthcare also performed well, rising as it reported strong underlying earnings despite its overall revenue dropping as the Covid testing bonanza faded.
Aurizon’s performance held the fund back over the quarter as it announced lower-than expected earnings due to poor weather. Amcor was also down as it reported declining packaging volumes in some categories. We believe the issues for both stocks are temporary and we are confident in their long-term prospects.
We opportunistically used the heightened volatility to supplement the Fund’s dividend income with solid option premium written around some of our investments including Coles, Sonic Healthcare, Suncorp and Woodside Energy.
Performance Commentary - February 28, 2023 The Fund performed well in February, up +1.0%, well ahead of the benchmark ASX 300, which dropped -2.5%.
The main reasons for the Fund’s better relative performance were resilient performances by many of our holdings, which announced positive results in reporting season including Brambles, Medibank and The Lottery Corporation, as well as a sell-off in the Resources companies where we remain cautious. Aurizon had a disappointing month, sold down after its earnings were lower due to poor weather.
The Fund earned solid dividends from many of its core investments in February as well as using the elevated volatility to earn attractive option income on holdings like Brambles, Coles, Medibank Private and Woodside Energy.
Global markets were weaker during February as inflationary concerns resurfaced and bond markets sold off. We continue to position the Fund in well-established, profitable companies that are well-positioned to perform well in these uncertain economic conditions, while staying alert to any opportunities that the current market volatility brings.
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