posted in: Building Wealth

Montara Wealth Investment Update – May Quarter 2 2024


Key points

  • Emerging markets – delivered strong returns to the portfolio, in large part due to the investment manager’s selection
  • Inflation and interest rates – rate expectations continuing to shift throughout the quarter based on the never-ending data releases

Market & Economic Overview

Inflation & interest rates

Markets followed on from their strong performance in the December quarter with growth assets delivering solid returns despite growing concerns interest rates would stay higher for longer.

The US situation is particularly interesting – with interest rates being set at a level clearly intended to slow down the economy and reduce inflation, yet the US government is running a budget deficit of close to 6% of GDP – the sort of spending that would normally be implemented only in an economic depression.

Emerging markets

Emerging markets rebounded strong in the quarter and we were pleased to see the chosen manager, GQG Partners deliver a return of 45.9% over 12 months – well in excess of the benchmark of 16%.

Portfolio Summary

  • During the quarter the markets began to walk back the number and timing of expected rate cuts, but strong economic data releases seemed to show both the local and global economy holding up better than most economists had expected. These data releases provided investors enough confidence to continue strong buying of ‘Growth’ assets such as shares, property and infrastructure.
  • Portfolio returns in the March quarter were strong again, following on from a healthy December quarter, pushing annual returns well above historical averages.
  • GQG Emerging Markets delivered a return of more than 16% in the quarter, and a 45.9% return over the last 12 months, more than 30% ahead of the Emerging Markets benchmark in the same period.

Portfolio Changes

We had a new addition to the portfolio in the period – leading domestic IT business Data#3 Limited (DTL). Data#3 provides a full suite of IT Services to government and large corporate clients. As the largest Australian partner and distributor for global IT brands such as Microsoft, HP and Cisco, the company has benefited from the continued IT spending in the Australian economy.

The company’s scale provides them with important competitive advantages and the company’s capital-light business model enables them to earn a return on equity of more than 50%, despite having no debt and considerable cash on the balance sheet.

Impressively, over the last 5 years the company has managed to grow earnings per share at around 20% per annum, while still managing to pay out around 90% of their earnings as dividends! With a significant sell-off in the company’s shares after what many now view as a misunderstanding of the company’s H1 profit result, the managers took the opportunity to pick up an initial 2% holding at what they considered to be a reasonable price for such a high-quality business. Given the strong confidence in the company’s future earnings, the managers will be keeping our eyes out for any further buying opportunities.

Stock of the Quarter 

It was interesting to note that all three of the holdings in the much-maligned retail sector – Baby Bunting, JB Hi Fi and Accent Group were among the portfolio’s top five contributors in the March quarter – delivering an average return of 48% for the financial year to date.

There is no doubt that retail businesses are finding the economic environment challenging right now – yet their average 48% financial year to date return also highlights how significantly the market can underestimate these businesses when sentiment turns negative as a result of challenging economic conditions.

While in the short term, economic weakness will be a negative for all retail holdings, in the long term it benefits the strongest and most profitable businesses in each sector.

 

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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