Portfolio Managers, Simon Conn and Marc Whittaker discusses the market’s performance during January as well as the performance of the QVE portfolio and key stocks.
Subtitles for QVE investment update January 2023.
Simon: Hi, Mark. Welcome to the January update for QVE. Another strong month for markets, we saw a very volatile period last year, a big sell off at the end of last year and then reflecting a low starting point, we’ve seen a very strong rally this month, really reflecting expectations that interest rate increases wouldn’t be as great globally. And also, the reopening of China helps. But we saw the MSCI Index up 6%, locally, the index here was up about 6% as well.
Marc: Yeah, the Nasdaq up over 10%, I think the best start for the Nasdaq in quite a number of years. So obviously the markets, clearly forming an idea on where rates are peaking and optimism coming through in terms of the way the markets performed over that period of time.
Simon: Yep. I think also helping the market were some positive trading updates from some of the retailers, really reflecting what happened last year with positions that they were in. So we saw strength in some of the retailers, and that also helps sentiment towards the market.
Marc: We did and so QVE up 2% for the month below the benchmark unfortunately, the benchmark up 5.8% for that EX20 indice, but really the index driven by those resource stocks that we talked about, you know, the South32s of the world, and so forth, very strong. But a lot of what we owned performed rather well too, obviously participating in that bounce in markets as well. But, quality companies, trading at cheap prices and a reasonable bounce in some of those names, which is welcome, but certainly these companies still remain very cheap.
Simon: Yep. I think definitely sentiment towards the media sector, got oversold last year so we saw good recovery and bounce from Channel 9 and oOh!Media – leading outdoor advertiser – that bounced. GUD had a good rally over the month, it was looking very cheap last month.
Marc: It was, a consumer stock participating in that bouncing consumer discretionary, but a good quality company and very cheap trading on less than nine times, a very good dividend yield. Not surprising that it did participate in that bounce.
Simon: We also saw a good rally in Ampol, an update from the refining divisions, the refining margins now have trended up this month. And also as activity levels have recovered we’ve seen consumer and transport fuel volumes recover. So, yeah, the result this month, the cash generation should be very strong and potential capital management, I think we’re back on a rise for that stock.
Marc: And Codan was probably the strongest performer of the month in terms of the magnitude of the share price moving up close to 30% for the month. Having come off a disappointing update late last year, they did give a trading update in January, which reaffirmed the earnings were on track to where they guided previously, which was encouraging because the market was a little bit concerned about the volatility around the metal detection earnings. But that looks like it’s based and then stabilised and the company can start to grow from there, the radio communications part of the business is actually performing really well. And so a lot to like about that story, a good bounce in the share price, but still what we think is a very good quality company trading at a tremendously cheap price.
Simon: Yep, and just rounding out stock news, Origin gave a pretty strong trading update as well, which obviously helps the due diligence process with Brookfield and EIG in the data room, considering whether they will proceed with the takeover bid.
Marc: That’s right.
Simon: But obviously, deferral of the takeover discussions or extension of the due diligence process has led to the share price drifting off.
But, I think a business that is very robust in its own right, and in a good position going forward.
Marc: I guess it’s fair to say that we do remain sort of cautious about the rally though, don’t we,
Marc: Markets will remain volatile. Obviously, news flow and expectations on interest rates will drive markets in the short to medium term, but really, we’re just focused on those quality companies paying good, resilient recurring, dividends, earning good cash. That’s really what we’re looking to populate the portfolio with, and I think we’re very comfortable with the holdings that are in the portfolio. We own a little bit of cash as well, which I think isn’t a bad, place to be given where we think markets might move throughout the year.
Simon: Yeah. Certainly focused on building, having a portfolio of good quality companies we think, that aren’t dependent on the cycle necessarily, that can continue to deliver consistent outcomes.
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