Income Report / Income Report; Outlining targets for the portfolio

By Market Matters 20 December 17

Income Report; Outlining targets for the portfolio

Market Matters Income Update 20th December 2017

The market has played the usual seasonal December strength almost to the day with the ASX 200 breaking out and trading to 9 year highs yesterday – with the market hitting 6080. From an index perspective we continue to target the 6125/6150 region by year end – which is fast approaching – with just 5 trading days left (after today) to round out 2017. Assuming we see 6125/6150 region by year end, that would produce an index gain of ~8%, with the number closer to ~12.5% when including dividends.

To give some context here, a look at typical asset returns below for different asset classes. Australian shares have an average return of 9.1% PA (since 1990).   

Source; Vanguard

The Income Portfolio is a reasonably new addition to the MM stable, having commenced on the 5th July 2017.

Since inception we’ve realised gains on 4 positions, with 3 being profitable and 1 not. On the 6/9 we closed Wesfarmers (WES) for a gain of 7.83%, on the 16/10 we closed HFA Holding (HFA) for a gain of 35.42%, on the 8/11 we trimmed Centuria (CNI) for an 18.18% gain while we then closed the position on the 29/11 for a gain of 20.66%.  Also on the 29/11 we closed AP Eagers (APE) for a loss of -2.56% , more to reduce our holdings in property / retail exposed companies than an outright negative view on APE. We are now more or less fully invested with just 2.5% in cash, with a skew towards equities over and above Hybrids / Fixed Income at this point in time.

In terms of the MM Income Portfolio over the past week, it added +0.34% versus a market which was up by 0.96%. Overall, the portfolio has gained 7.65% since inception (5th July 17), which is a strong return considering our exposure to equities has averaged around 55%.The ASX 200 is up 4.98% during that period and 7.12% on an accumulation basis.

As it stands, we’re comfortable with the portfolio however we are looking to increase cash from our equity allocation into strength ~6150 on the index. We continue to think that being active is the best approach into 2018 as we trade in the mature stages of the post GFC bull market.

MM Income Portfolio Positioning

Equities 62.50% weighting

NAB (NAB) – we are long here from $30.12 with a 12.00% weighting. This is our largest holding in the portfolio and if we include dividends, we’re up marginally on the positon. As per comments in last week’s report, we intend to reduce our holding ~$32

National Australia Bank (NAB) Weekly Chart


Commonwealth Bank of Australia (CBA) – we are long here from $80.30 with a 7.50% weighting, showing a small profit inclusive of the dividend. We intend to hold CBA into the February Dividend at least.

Commonwealth Bank (CBA) Monthly Chart

Nick Scali Limited (NCK) – we are long here from $6.12 with a 3.00% weighting. We’re up ~14% on the position and although the earnings trends on NCK are strong, and the stock remains reasonable value, we’re conscious that the stock tends to get sold hard on instances of slight earnings hiccups, but is not experiencing the same upside on the recent earnings upgrade. This suggests that the stock is well owned by those that ‘believe’ in it , but marginal new buyers are more difficult to come by. We may sell this sooner rather than later.

NCK – Earnings Expectations (RED) – share price (WHITE)


Source; Bloomberg

Nick Scali (NCK) Weekly Chart

Suncorp Group Limited (SUN) – we are long here from $14.34 with a 11.00% weighting, sitting on a slight profit when considering dividends. We will look to reduce our weighting to ~6% above $15 should it trade there.

Suncorp (SUN) Monthly Chart

Harvey Norman Holdings Limited (HVN) – we are long here from $4.07 with a 4.00% weighting  sitting on a slight profit when considering dividends. We are sellers here around $4.50

Harvey Norman (HVN) Daily Chart

Genworth Mortgage Insurance Australia Limited (GMA) – we are long here from $3.16 with a 4.00% weighting, sitting on a slight profit when considering dividends. GMA came out last week with a downgrade to their 2017 Net Earned Premium guidance. After initial weakness the stock was bid back up.  GMA is typically one to buy into bad news particularly around lower sales given that reduced sales = less capital and therefore more capital management. They currently have a $100m buy back going on and can afford to do more, and the stock price showed that on the day of the downgrade and thereafter, rallying ~6% from the daily lows. We are looking for $3.50 as a minimum target for GMA.

Genworth (GMA) Daily Chart

Telstra Corporation Limited (TLS) – we are long here from $3.48 with a 5.00% weighting sitting on a ~6% profit. As per comments around the Platinum Portfolio, we are targeting $3.85 for TLS

Telstra (TLS) Weekly Chart

Vicinity Centres (VCX) – we are long here from $2.74 with a 4.00% weighting sitting on a small profit. The recent bid for Westfield has put some life back into the property sector however a move above ~$3.05 would prompt us to re-assess this position.

Vicinity Centres (VCX) Daily

Woodside Petroleum Limited (WPL) – we are long here from $31.29 with a 3.00% holding , using the recent Shell induced weakness as the buying opportunity. We expect Oil to have a good 2018 and will continue to hold WPL for exposure to that theme.

Woodside (WPL) Weekly Chart

Perpetual Limited (PPT) – we are long here from $48.40 with a 4.00% holding. We need to see a move above $49 for this chart to become bullish and we may upweight this position if that plays out

Perpetual (PPT) Weekly Chart

The Australian Leaders Fund (ALF) – we are long here from $1.06 with a 5.00% weighting. A recent position with the fund trading at a discount to NTA. This is a position that will likely perform better in a weaker market. NTA sits at $1.20

Australian Leaders (ALF) Weekly Chart

Hybrids 30% weighting

Australia and New Zealand Banking Group Limited Capital Notes (ANZPD) – we are long here from $102.85 with a 7.5% holding , and have earnt $2.72 in income. We continue to think that a lack of supply of new hybrid securities into 2018 will support existing issues.

ANZ Captial Notes (ANZPD) Weekly Chart


Westpac Banking Corporation Capital Notes (WBCPD) – we are long here from $101.50 with a 7.5% holding, having collected $2.47 in income. As per above, continue to hold for income.

WBC Capital Notes (WBCPD) Weekly Chart


Commonwealth Bank of Australia Capital Notes (CBAPF) – we are long here from $101.85 with a 7.50% holding. This has just paid a distribution and we are looking for the holding to track towards $104 again.

CBA Capital Notes (CBAPF) Daily Chart


Bendigo and Adelaide Bank (BENPG) – this is a new security that listed last week and we have a 7.5% weighting. Bought at $100 and now trading at $101.97. Bloomberg are yet to provide a chart of it, however we think fair value sits around $103.

Fixed Interest 5% weighting

MCP Master Income Trust (MXT) – we are long here from $2.00 with a 5.00% holding. At $2.08 this is rich but worth holding, at $2.15 where it has briefly traded in October, this is a SELL.

MCP (MXT) Daily Chart


Conclusion (s)

We are positioned for more upside in the market however will be looking to sell equities into strength. 

Nick Scali (NCK) is being watched closely for a potential sale

**Today’s reports will be the last for 2017 with the full service returning on the 8th January. Throughout that period, we will send alerts as usual should we make any amendments to our portfolios. 2017 has been a big year for Market Matters, we hope you’ve enjoyed and more importantly benefitted from the service. At times delivering a morning, afternoon and income report +email and text message alerts can be draining, but we thoroughly enjoy the markets and are very passionate about presenting our views to the MM community. Thank you to our subscribers, particularly those that have been with us over the long term, and we welcome all our new  subscribers in 2017. We will continue to enhance and improve our offering in 2018 and look forward to writing to you again in early 2018. Merry Christmas from our family to yours and here’s to a prosperous 2018 – James & the Market Matters Team**


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, or after the session when positions are traded.


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