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EIGA December 2019

EIGA December Monthly Report & Update

Overview
  • Global markets were buoyant in December, on the back of positive developments in the US-China trade war and the decisive outcome of the UK election, which will likely see an end to the Brexit impasse.
  • The Australian market lagged as many large, expensive defensive and growth stocks were sold off and investors rotated into more cyclical parts of the market such as resources.
  • The major positive contributors were Platinum Asset Management (+5.6%), Rio Tinto (+3.6%) and BHP (+1.8%), while Perenti (-16.7%), Telstra (-8.3%) and Crown Resorts (-7.0%) detracted.
  • The Fund continues to target a pre-tax distribution yield for FY20 of around 7.0%.
Performance
Month (%)Quarter (%)FYTD (%)1 Year (% p.a.)Since Inception* (%)
Income Distribution0.41.32.713.38.9
Capital Growth-2.4-2.5-1.53.4-3.1
Total Return-2.0-1.21.116.75.9
Franking Credits*0.30.61.26.14.0
Income Distribution including Franking Credits0.71.93.919.412.9
Benchmark Yield* Franking Credits0.20.92.86.96.3
Excess Income to Benchmark*0.51.01.112.56.6

^Since inception May 2018. EIGA returns are calculated using net asset value per unit at the start and end of the specified period and do not reflect the brokerage or the bid ask spread that investors incur when buying and selling units on the ASX. Benchmark yield is calculated based on the difference between the return of the S&P/ASX300 Franking Credit Adjusted Daily Total Return Index (Tax Exempt) and return of the S&P/ASX300 Index. #Franking credits are an estimate only as tax components will only be known with certainty at the end of the financial year. Past performance is not a reliable indicator of future performance.

Distribution

The EIGA distribution for December 2019 was of 1.72 cents per unit.

Have you thought about reinvesting your distributions? If you don’t rely on the cash payment of distributions every month it might be worth considering reinvesting them so your invested capital can build and grow through the DRP Plan. You can do this by logging onto your Link account or emailing [email protected] or call 1300 554 474.

EIGA Review

Global markets were generally buoyant in December, on the back of positive developments in the US-China trade war and the decisive outcome of the UK election, which will likely see an end to the Brexit impasse. This saw the S&P500 +2.6%, Nikkei 225 +1.6%, FTSE100 +2.7% and the Shanghai Composite +6.2%.

This positive sentiment saw a move into the more cyclical parts of the market such as resources, while the growth and defensive sectors, such as Healthcare and REITs, sold off. This depressed the Australian market overall, with the Index finishing the month down -2.0%.

Stocks which contributed to performance included Platinum Asset Management (+5.6%) which, as a value manager, should be expected to deliver outperformance should this rotation continue. Other outperformers included Resources holdings Rio Tinto (+3.6%), BHP (+1.8%) and mining services company Seven Group (+1.7%). Event Hospitality (+1.7%) also outperformed, as competitor Village Roadshow received a takeover offer from private equity firm PEP. This approach could serve to highlight the significant unrecognised value in Event Hospitality.

The Fund also benefitted from its underweight position in expensive sectors such as REITs (-4.2%), IT (-3.9%) and Healthcare (-2.7%), which do not meet our valuation criteria.

Stocks which detracted from performance included Perenti (-16.7%) after the termination of a contract at one of its African operations. Telstra (-8.3%), Janus Henderson (-7.7%), Crown Resorts (-7.0%) and Graincorp (-6.8%) also declined on no specific news.

EIGA Activity

During the month we trimmed our holdings in Downer following its recent strong performance. We also reduced our holding in Perenti and used the proceeds to add another mining services exposure, Monadelphous, to the portfolio.

At month end, stock numbers were 34 and cash was 7.47%.

Distribution

In order to provide a regular income stream, the Fund pays monthly distributions.  We aim to pay equal cash distributions each month, based on our estimate of the dividend income to be generated over the year. Franking credits, surplus income and any realised capital gains will then be distributed, as per usual, with the June distribution.

The Fund declared a distribution for December of 1.7cpu, bringing the total income return for the last 12 months to 48.0cpu. This represents an income yield for the last 12 months of 13.3% or 19.4% including franking credits.

The distribution yield over the past 12 months was boosted as a result of the Fund participating in a number of off-market buy-backs. This is not expected to be repeated in the current year.

For the FY20 financial year, we are targeting a 7.0% distribution yield, comprising a 5.0% cash yield plus 2.0% in franking credits.

Outlook

The market is currently trading slightly above its long-term average, with a FY21 P/E ratio of 16.8x and offering a gross dividend yield of 5.3%.

Within the overall market, we are currently finding many good value, high-yielding investment opportunities. Across both the industrial and resources sectors, we are seeing many quality companies trading on attractive valuations which should deliver solid returns to investors from these levels.

By contrast, there remain large numbers of expensive growth and momentum style stocks which present significant de-rating risks if the lofty growth rates implied in their valuations are not able to be met. We do not hold these types of stocks as they do not meet our value criteria.

EIGA continues to offer a higher forecast gross yield than the overall market and, as always, our focus will continue to be on investing in quality companies which are offering attractive valuations  and have the ability to deliver high levels of franked dividend income to investors. Further, we believe the current very low interest rates highlight the relative attractiveness of financially-sound, high  dividend yielding equities.

 

To read more about eInvest Income Generator Fund (Managed Fund) ASX: EIGA, click here.

Past performance is not a reliable indicator of future performance. Please read the PDS prior to investing. This information is general in nature and is subject to the terms and conditions outlined here.