- Markets were buoyant in November, and EIGA delivered a return, including franking credits of 2.4%
- Better performing holdings included, Caltex (+26.7%), which received a takeover offer, Qantas (+13.9%) which announced ambitious medium-term growth targets and Graincorp (+12.4%) after the ACCC approved the sale of its terminals business.
- The major detractors from performance were the banks (down an average of -4.5%), after delivering generally soft full-year results and being impacted by the Westpac AUSTRAC issues.
- EIGA continues to target a pre-tax distribution yield for FY20 of around 7.0%.
|Month (%)||Quarter (%)||FYTD (%)||1 Year (% p.a.)||Since Inception* (%)|
|Income Distribution including Franking Credits||0.7||2.0||3.3||19.6||13.4|
|Benchmark Yield* Franking Credits||0.7||1.5||2.6||7.1||6.6|
|Excess Income to Benchmark*||0.0||0.5||0.7||12.5||6.8|
^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.
The EIGA distribution for November 2019 was of 1.72 cents per unit.
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The Fund delivered a return of +2.4% in November, marginally behind the index. This was a solid result, given the particularly strong returns from a number of sectors which the Fund is underweight on account of valuation, including IT (+10.6%), Healthcare (+8.8%) and Consumer Staples (+8.1%).
Fund holdings which contributed positively included, Caltex (+26.7%), which rallied after receiving a takeover offer from Canadian-based service station operator, Alimentation Couche Tard. Should the takeover proceed, it is likely to include the payment of a large, fully-franked dividend. Qantas (+13.9%) rose after announcing ambitious medium-term growth targets and Graincorp (+12.4%) lifted after the ACCC approved the sale of its terminals business. This paves the way for it realise value by demerging into separate grains and malt businesses. Coca-Cola Amatil (+12.1%), Amcor (+10.7%) and Telstra (+10.6%) also outperformed.
The major detractors from performance were the banks (down an average of -4.5%), after delivering generally soft full-year results and being impacted by the Westpac AUSTRAC issues. There is absolutely no disputing that the performance of the banks, in relation to conduct and compliance, has been totally unacceptable. However, new management and increased regulatory oversight will ensure that these issues will be remedied. In the mean time, the underlying businesses remain strong, valuations are attractive and dividend yields will continue to be high. Further, this year may well be a turning point in the performance of the sector, as its focus moves from rectifying the errors of the past, towards optimising for the future. As a result, the Fund continues to hold an overweight position in the major banks.
During the month we took profits and exited our holding in Star Entertainment and reduced holdings in IAG and Suncorp. Proceeds were used to increase our holding Macquarie Group and the major banks.
At month end, stock numbers were 31 and cash was 5.5%.
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 November 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 13.4% or 19.6% 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.
The market is currently trading slightly above its long-term average, with a FY21 P/E ratio of 17.3x and offering a gross dividend yield of 5.2%.
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.
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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.