eInvest Income Generator Fund (Managed Fund) (ASX:EIGA) July 2018 Monthly Report
as at 31 July 2018
EIGA (the Fund) announced its maiden monthly income distribution of 1.67 cents per unit, to be paid on 15 August 2018.
The Australian stock market continued its rise, delivering a return of 1.3% for the month of July, bringing the total return for the last 12 months to a healthy 14.7%.
The market was led higher by the Industrials, up 1.6% with the major banks continuing to recover, while the Resources were largely flat.
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Better performing holdings over the month included BHP (+2.8%), which outperformed after announcing the sale of its US shale oil operations for US$10.8bn. The sale represents an important step in BHP refocussing on its core operations in iron ore, copper, coal and conventional petroleum. Given the already strong balance sheet, the bulk of the sale proceeds will be returned to investors through a combination of higher dividends and buy-backs. Along with the current strong commodity prices, it is this ability to return significant amounts of capital and franking credits to shareholders which makes BHP very attractive as an investment.
The major banks also outperformed, delivering an average return of +2.6%. Sentiment towards the sector is still negative due to the combination of the Royal Commission and concerns around the outlook for the housing market. However, while the growth outlook for the banks is definitely very muted, they are trading on attractive valuations and offering compelling dividend yields. At current prices, the sector is paying an average FY19 gross dividend yield of 8.9%.
Other stocks which outperformed included Downer (+8.8%), Telstra (+8.4%), Flight Centre (+6.8%), Perpetual (+4.9%), Tabcorp (+4.7%), and Stockland (+4.5%).
The main detractors from EIGA’s performance were IAG Insurance (-5.7%), Platinum Asset Management (-4.5%), Graincorp (-3.5%) and Rio Tinto (-2.7%).
During the month, Perennial Value (Investment Manager) took profits and trimmed holdings in a number of stocks which had performed strongly over recent months including Macquarie Group and Coca-Cola Amatil, with proceeds being reinvested into CBA and Rio Tinto. At month end, stock numbers were 31 and cash was 8.0%.
EIGA targets a 7% pre-tax annual income yield, comprising a 5% cash yield plus 2% franking credits. In order to give investors more certainty over their income payments, the fund aims to pay equal monthly cash distributions, based on our estimate of the income to be generated over the year. Franking credits and any realised capital gains will then be distributed with the June year-end distribution. EIGA will pay its maiden income distribution on 15 August 18 and thereafter monthly.
Despite the ongoing negative political atmosphere, the economic backdrop continues to be positive, both domestically and offshore, with healthy growth and low unemployment in most major regions. This is supportive of ongoing moderate corporate earnings growth, healthy resources demand and financial system stability. The portfolio is exposed to this dynamic through its positions in the large-cap, low-cost resource stocks, the major banks and a range of quality industrials. We continue to avoid those sectors of the market where valuations are high and those which are exposed to the risk of rising interest rates such as Healthcare, REITs and Infrastructure.
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.
The Responsible Entity is Perennial Investment Management Limited ABN 13 108 747 637, AFSL: 275101. The Investment Manager is Perennial Value Management Limited ABN 22 090 879 904 AFSL: 247293. This report has been prepared by ETF Investments Australia Pty Ltd trading as eInvest Australia (‘eInvest’) ABN: 88 618 802 912, as the corporate authorised representative of Perennial Investment Management Limited. This report is for information purposes only. Accordingly, reliance should not be placed on this information as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation. While every effort has been made to ensure the information is accurate; its accuracy, reliability or completeness is not guaranteed. Past performance is not a reliable indicator of future performance. The current relevant product disclosure statement can be found at www.perennial.net.au/EIGA