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QVE Investment Update – September 2022

QVE Portfolio Manager Simon Conn discusses the markets performance during September and the performance of the QVE portfolio.

Subtitles for QVE investment update September 2022.

September this year was a tough month for global markets.
Primarily because of the drive by the US Federal Reserve to increase interest rates.
They called out clearly that they wanted to stamp out inflation
and would be very aggressive in terms of moving rates.
So we saw interest rates in the US move higher,
as we did in many other places around the world with our local RBA moving rates as well.
Though it was less than expected at twenty five basis points.
But this move in interest rates, which is being replicated around the world
saw global equity markets very soft. The main global index the S&P [500],
which tends to lead most most global markets was down by 9.2% for the month,
which was its worst September for over twenty years.
So pretty tough period.
Domestically, our ASX300 actually did a little better than that down 6.3%.
But the ex-20 sector fell, obviously,
with its higher weighting to smaller companies which are more volatile
was down 8.4% for the month, so a pretty tough month.
Mirroring that, most global commodities were soft. Oil was down,
for instance, by 8.8%.
Yes. So for the month of September, the QVE portfolio
had tough month and was down about 7.7%,
which was better than the index, but still a disappointing outcome.
And look as we see in markets where there’s extreme levels of uncertainty
and concerns around slowing economic growth
and also higher interest rates as we’re witnessing now,
it’s important to remember the share prices are man-made
creations. So they can be very volatile and can become
detached from the underlying fundamentals of the businesses.
And we saw that in September where most share prices of companies fell over the month.
So it was a very volatile and difficult month.
Bucking that trend, we did see some strength in New Hope Coal.
It had a really strong result on the back of the thermal coal price,
a good final dividend, plus a special dividend,
which really enhances the returns to shareholders.
And it will be a boost for the franked dividends for QVE.
But it remains a very volatile environment
and we expect share prices to reflect that for some time.
Yes, so for the month, we used the weakness to top up on some favoured positions.
So we added to our existing positions in companies such as Ampol,
Metcash, Suncorp and Sonic Healthcare
during the month. You know, they’ve all got strong, resilient, businesses,
fairly defensive businesses that generate good cash with solid balance sheets.
Suncorp in particular have entered the process to sell their bank to ANZ. The process
will take about twelve months, but the end of that process,
the company should be in a position to contemplate capital management.
Currently it trades on over a 6% yield,
and the capital that transaction will release opens up the door for further capital management initiatives.
And then also during the month we used the weakness as an opportunity to add APA to the portfolio,
a very resilient business, operates a leading portfolio of gas pipelines around Australia.
A very resilient business that generates over 5% yield at the current
prices and it’s the stock that we’ve been watching for a while.
And trading below $10 it’s an attractive level to add that to the portfolio.
Yes, as we’ve been consistently saying for some time,
now the portfolio remains focused on good-quality companies that have got fairly resilient
and defensive businesses that can continue to generate profits
and be able to pay dividends to the company
so we can continue to fund the dividend for our existing shareholders. So we’re always alert to opportunities
and really, you’re looking at looking for the periods of weakness to add,
you know, favoured names to the portfolio to continue to build that income stream going forward.
We’ve got about 13% cash. So we’re looking to deploy that cash, not in
an irresponsible way, but just generally into the market as opportunities present themselves.
As I think, you know, the volatility will continue to do so.