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Monthly Update February 2019

EIGA February Monthly Report & Update

Overview
  • Global markets continued their recovery in February, with the S&P500 +3.0%, FTSE 100 +1.5%, Nikkei 225 +2.9% and Shanghai Composite +13.8%.
  • The Australian market also performed strongly, finishing the month +6.0%, on the back of a broad-based rally in both industrials and resources.
  • The Fund’s strong February total return of 7.2% reflected a generally positive reporting season across the portfolio’s holdings, with a number of companies increasing their dividends.
  • The market is currently trading close to its long-term average, with a FY20 P/E ratio of 15.2x and offering an attractive gross dividend yield of over 6.0%, presenting many very good value opportunities available for investors with a longer-term time horizon
Month (%)Quarter (%)FYTD (%)1 Year (% p.a.)Since Inception* (%)
Income Distribution0.41.43.4-3.5
Capital Growth6.87.0-2.5-0.1
Total Return7.28.40.9-3.5
Franking Credits*0.20.71.5-1.5
Income Distribution including Franking Credits0.62.14.9-5.0
Benchmark Yield* Franking Credits1.11.64.1-5.3
Excess Income to Benchmark*-0.50.50.8--0.3
Distribution

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

EIGA Review

Global markets continued their rally during February, as investors became more optimistic on the macro backdrop, in particular a more dovish tone being taken by the Fed regarding future interest rate rises. The Australian market also performed very strongly over the month, to close up +6.0%. The rally was broad-based, with Consumer Staples the only sector to record a negative return.

The highlight of the month was the company reporting season. Results were generally well-received, with the majority of companies held in the Fund reporting higher earnings and dividends. Several companies such as BHP, Rio Tinto and Flight Centre announced special dividends, while Caltex announced an off-market buy-back and Woolworths indicated that it intends to return up to $1.7bn to shareholders following the sale of its petrol business.

Stocks which performed well included Resources companies Rio Tinto (+10.5%), Woodside Petroleum (+9.3%) and BHP (+6.9%), which rallied on the back of higher commodity prices. Mining services companies Ausdrill (+38.1%) and Seven Group (+22.5%), also performed well as they stand to benefit from the strength in the resources sector.

The major banks also rallied, rising an average of +8.9%. This followed the release of the Royal Commission report, which did not contain any recommendations which were likely to materially impact the long term profitability of the sector.

Stocks which detracted from performance included Coles (-9.4%) and Woolworths (-0.9%), which both reported softer sales and Event Hospitality (-2.4%) which saw weaker earnings from its hotel operations.

EIGA Activity

During the month we established positions in Link Administration and Medibank Private and increased our holding in IAG, while trimming our holdings in the major banks. At month end, stock numbers were 34 and cash was 6.0%.

Outlook

The market is currently trading close to its long-term average, with a FY20 P/E ratio of 15.2x and offering an attractive gross dividend yield of over 6.0%.

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 pockets 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.