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July EIGA Monthly Update

EIGA July Monthly Report & Update

Overview
  • Global markets moved higher in July, on the prospects of Central Bank easing, with the S&P500 +1.3%, FTSE 100 +2.2%, Nikkei 225 +1.2%, while the Shanghai Composite eased, -1.6%.
  • The Australian market delivered another strong result, finishing the month +3.0% and finally surpassing its pre-GFC high, as the RBA cut interest rates by a further 25bp to a record low of 1.0%.
  • The better performing sectors included Consumer Staples (+9.6%), Healthcare (+6.0%), IT (+5.1%) and Consumer Discretionary (+4.7%). Metals & Mining (+1.1%), Materials (+1.2%), Energy (+1.5%) and Financials (+1.8%) lagged, while still all delivering positive returns.
  • The eInvest Income Generator Fund (EIGA) declared a distribution for July of 1.72cpu, bringing the total income return for the last 12 months to 17.5%.
Performance
Month (%)Quarter (%)FYTD (%)1 Year (% p.a.)Since Inception* (%)
Income Distribution0.48.20.412.010.3
Capital Growth1.2-3.61.2-5.9-2.0
Total Return1.64.61.66.18.3
Franking Credits*0.33.70.35.54.6
Income Distribution including Franking Credits0.711.90.717.514.9
Benchmark Yield* Franking Credits0.01.10.06.66.3
Excess Income to Benchmark*0.710.80.710.98.6

^Since inception May 2018. Fund 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 July 2019 was of 1.72 cents per unit.

EIGA Review

Global markets moved higher again in July, on the prospects of Central Bank easing, with the S&P500 +1.3%, FTSE 100 +2.2%, Nikkei 225 +1.2%, while the Shanghai Composite eased, -1.6%.

The Australian market delivered another strong result, finishing the month +3.0% and finally surpassing its pre-GFC high, bringing the total return for the last 12 months to +13.2%.

The RBA followed up its June rate cut with another 25bp cut in July, sending the cash rate to a record low of 1.0%, with the aim of reducing the unemployment rate and stimulating wages growth. While the domestic economy has slowed, there was further evidence that the housing market has stabilised.

The combination of falling interest rates and increased geopolitical risks around trade disputes and Brexit, saw investors seek out more defensive parts of the market, resulting in strong performances from sectors such as Consumer Staples (+9.6%), Healthcare (+6.0%) and IT (+5.1%). This presented a headwind for the Fund, as we are underweight these sectors due to their very high valuations and low dividend yields.

By contrast, more cyclical sectors of the market such as Metals & Mining (+1.1%), Materials (+1.2%), Energy (+1.5%) and Financials (+1.8%) lagged, albeit while still all delivering positive returns.

Stocks the Fund holds which performed well included, Flight Centre (+10.9%), Calex (+8.9%), Wesfarmers (+8.4%), Ausdrill(+8.2%) and NAB (+7.2%).

 

Stocks which detracted from performance included Perpetual (-6.5%), Crown Resorts (-4.7%), Rio Tinto (-4.7%) and Woodside Petroleum (-4.6%).

EIGA Activity

During the month, we took profits and reduced our holdings in CocaColaAmatil and Medibank Private, both of which had performed strongly in recent times.

Distribution

In order to provide a regular income stream, EIGA 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.

Looking forward to the current financial year, EIGA is again targeting a 7% distribution yield, comprising 5% cash plus 2% franking credits.

Outlook

The market is currently trading slightly above its long-term average, with a FY20 P/E ratio of 16.4x and offering an attractive 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 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.