Income Report / Income Report; Our cash levels look correct

By Market Matters 04 October 17

Income Report; Our cash levels look correct

Income Report update 4/10/17

The MM portfolio had a good week, rising 0.31% against the index which has fallen 0.34%. HFA group has once again performed strongly, now up over 10% since we purchased it at the launch of the Income Report. The Goodman Group hybrid we allocated 5% to at inception has now been removed from listing as flagged in last week’s report. Distributions have been paid for $1.41 interest, along with $100 principle per security. This lifts our cash levels to 19% and represents a small 0.41% gain on the purchase at $101. Please note, no franking was tied to the interest payment.

Our 19% cash holding feels about right as the ASX200 flaunts with its lowest levels in ~20-weeks. The motivation behind our Income Portfolio is for investors to receive sustainable yield whilst obviously preserving capital. Market Matter’s short-term view remains slightly bearish targeting a test of the psychological 5500 area, or 3% lower. Hence we are remaining patient for now with future purchases but some very attractive dividends looming in November expect our “buying boots” to be fitted in coming few weeks.

ASX200 Weekly Chart

MM’s finger on the pulse of Interest rates

The local RBA cash rate remained at the historically low 1.5% level as expected on Tuesday and with Sydney housing prices falling for the first time in 17-months the RBA may need a decent shove prior to following the US Fed on a commencing a hiking cycle. The problem in Australia remains the same:

“Growth in housing debt has been outpacing the slow growth in household incomes for some time” – RBA Governor Philip Lowe.

While we continue to believe the next change in local interest rates will be a hike to 1.75% our best guess is still Melbourne Cup Day in 2018, over a year away.

Australian 3-year bond yields Weekly Chart

The US have already started raising interest rates with one more flagged for this year and a significant 3 for 2018. We are still targeting the 3% area for US 10-year bond yields which is a decent % increase from todays 2.3157%.

The main beneficiary from our bullish view on global interest rates should be the banking and insurance sectors hence we are still exploring these stocks for buying opportunities. Conversely we will continue to avoid the traditional “yield play” stocks like Sydney Airports (SYD) and Transurban (TCL).

US 10-year bond yields Weekly Chart

5 stocks on the radar over coming weeks

1 National Australia Bank (NAB) $31.14

NAB pays a very attractive dividend of around 99c fully franked in November. Investors who buy NAB today will receive a very attractive 8.8% fully franked dividend over the next 13-months.

National Australia Bank (NAB) Weekly Chart

2 Harvey Norman (HVN) $3.87

We already own a small 4% exposure to HVN from slightly higher levels and will be happy to average this position around the $3.50 area where the stock will be yielding an attractive ~7.5% fully franked yield.

Harvey Norman (HVN) Weekly Chart

3 BHP Billiton (BHP) $26.06

We remain keen to allocate some funds into the resources space moving forward but have not decided clearly on where and at what levels, plus we are concerned this view has become crowded over recent weeks / months. At this stage we imagine we will commence accumulating BHP under $25.

BHP Billiton (BHP) Weekly Chart

4 Fortescue Metals (FMG) $5.16

FMG has implemented some very impressive capital management strategies over recent years, while the stock is clearly relatively high risk due to its dependency on iron ore under $5 it looks good value for a small position within our Income Portfolio - in 2017 it paid 45c out in fully franked dividends.

Fortescue Metals (FMG) Daily Chart

5 Genworth Mortgage (GMA) $2.78

GMA has slipped slightly since we entered at the beginning of August. While we only hold 4% of the MM Income Portfolio in the stock we are unlikely to average moving forward. However, we remain comfortable with the exposure especially considering the ~10% fully franked yield.

Genworth Mortgage (GMA) Weekly Chart


Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Wednesday.


All figures contained from sources believed to be accurate.  Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy.  Prices as at 4/10/2017.  2.00 pm

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