The August FY16 reporting season as usual provided winners and losers. While we are likely to do some portfolio adjustments as a result of the new information released with company results, the most important question in coming months will most likely be how to position for a potentially changing macro environment. We believe that a market environment in which sector and stock performance is less dominated by bond yields and unusually high multiples being paid for earnings growth, should benefit the Fund’s performance given Alphinity’s more balanced investment approach.
Treasury Wine Estates, Fortescue Mining, Lend Lease and Goodman Group were some of the highlights for the Fund. Meanwhile, Brambles (CEO change), Medibank (cautious outlook) and Adelaide Brighton Cement (volumes a bit weaker), which fell a little short even though these stocks made strong contributions over last 12 months.
We have been steadily increasing our weighting to the Resources sector, and have been overweight since June. We continue to see potential for further positive earnings revisions and are likely to keep adding to this sector.
The fund has so far balanced the Resources overweight with only a modest underweight to the yield proxy sectors of the equity market, although this underweight is more significant when positions in the Banks and Telstra are taken into consideration.
We have over the last couple of months been taking yield exposure down further, primarily by exiting property company GPT and trimming our position in Sydney Airports, although this has to some extent been offset by building the Fund’s position in better-valued Spark Infrastructure.