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Montara Wealth Investment Update – September 2022 Edition


Market and Economic Overview

Volatility remained higher in the September quarter as markets were driven by the contradictory forces of strong fundamentals and concerning macroeconomic factors.

Looking around the globe, Europe’s energy supply challenges and sky-rocketing inflation are forcing the European Central Bank to continue with their aggressive rate increases, despite an economy that is far from flourishing.

The former government led by Liz Truss in the UK government scored an ‘own goal’ with a recklessly aggressive economic plan that saw market interest rates skyrocket, the value of the pound plummet, and forced the intervention of the Bank of England.

The Chinese economy also continued to struggle as a result of ongoing pressure in the property market, alongside the country’s continuing COVID-zero policies that are beginning to push up unemployment and weigh on industrial production.

In this context, it’s clear that Australia remains very much the lucky country; with abundant natural resources that continue to bolster our national income, low unemployment and high household savings, and a rapidly falling Australian dollar that improves the global competitiveness of our export industries.

Of course this doesn’t mean that we’re immune to these global challenges; the flip side of low unemployment is that we have shortages of labour in various sectors, domestic inflation continues to rise, and the RBA’s aggressive rate increases will likely begin to flow through to consumer spending in coming months through increased mortgage repayments. But importantly, our economy enters this challenging period from a position of strength, and arguably a more positive economic backdrop than you’ll find just about anywhere else around the world.

Looking ahead, and while it appears highly likely that economic conditions will continue to weaken across the globe in the coming months, we are fortunate to be entering this slowdown from a position of relative economic strength. Importantly too, the forward-looking nature of markets means that a significant economic slowdown is already factored into current prices, increasing the possibility of a medium-term recovery in markets in the event that we see signs that we might be nearing an end to interest rate increases.

In this context then, bad news for the economy – a slowdown in growth, increasing unemployment etc is likely to be seen as good news for the markets! So while more volatility is virtually assured, ironically because negativity is currently so pervasive, the outlook for markets is certainly not all doom and gloom.

 

Portfolio Summary

The portfolio outperformed the benchmarks in the period, as a result of both strong investment selection and our decision to remain unhedged from a currency perspective, as the Australian dollar continued its ongoing decline against the US dollar. Outperformance would have been larger, had it not been for the poor quarter from both property and infrastructure.

On the investment selection side, positive contributors were seen across the portfolio, which was pleasing to see. The Australian Equities portfolios outperformed, benefiting from strong stock selection, as well as their focus on quality companies – those with stable and growing profitability, and solid balance sheets – which tend to hold up better in weak economic environments.

Direct Australian Share Portfolio

Rather than attempting to predict short-term swings in investor sentiment, our investment team focus on investing in a diversified mix of high-quality businesses, with strong management and steadily growing earnings, when they’re available at a reasonable price relative to their future prospects. This has enabled the portfolio to grow aggregate portfolio earnings, with dividends reinvested by 136%, or 18.7% per annum, compared with only 66% growth, or 10.7% per annum for the ASX200 index with dividends reinvested, over the same time.

Stock of the Quarter

Long-term investors in the Consolidated Equities Portfolio will be well aware of our investment team’s enthusiasm for Mineral Resources (MIN), which has been the largest holding for some years now and remains so at the date of writing. Our faith has certainly been repaid handsomely as well, with an outstanding 38% return in the September quarter taking our total returns since inception of the portfolio tantalisingly close to 50% per annum.

Importantly, the decision to slightly reduce the holding certainly doesn’t indicate any lack of confidence in the company’s future prospects, with the decision driven instead by a desire to keep the company’s weighting in the portfolio at a manageable level from a risk perspective, on top of increasingly attractive alternative investment options opening up in other very high-quality companies, whose shares have been heavily sold off in recent periods. As one of the world’s largest producers of Lithium, Mineral Resources (MIN) is actually on track for a bumper year in FY2023, as they benefit from the extraordinary run-up in Lithium prices driven by the accelerated electrification of the world’s vehicle fleet.

We look forward to providing more exciting news on the company’s developments in the coming periods.

Performance 

Returns 1 Month 3 Month 1 Year 3 Years 5 Years
Bellmont Diversified High Growth -4.90% 0.04% -14.30% 4.85% 9.75%

*Past performance is not an indicator of future performance

Please note, it takes over 3 weeks for returns to be finalised, hence the information in this report might be slightly delayed. 

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Financial Advisers & Planners – Hire Fee Based Best Financial Advisors – Estate Planning Firms,
Wealth Management & Advice Experts, SMSF Specialists- Financial Consultant & Strategy that
is Best for You in Bondi, Balmain & Sydney – Montara Wealth

 

Suite 1, Level 6/309-315 George St, Sydney NSW 2000 | GPO Box 4473, Sydney NSW 2001
Montara Wealth Pty Ltd, ABN 14 625 010 344 is Corporate Authorized Representative of Montara Services Pty Ltd Licence No. 526747

Privacy Policy | Licensing Disclaimer | Financial Services Guide | Advisor Profile