Performance Summary
* All Platypus Performance data is provided on an after fees basis.
Past Performance
June 2010
Month in Review
The Platypus portfolio declined by 3.65% after fees in June, underperforming the benchmark ASX/S&P300, Accumulation Index by 0.65%. Materials (-0.53%) and Telecommunications
(-0.42%) were the worst performing sectors in the portfolio in June. Positive contributions were made by Consumer Discretionary stocks (+0.25%), Industrials (+0.19%) and Energy (+0.12%).
At the stock level not owning Telstra had the biggest impact on performance during the month as Telstra finally inked a long awaited deal with the government on transferring parts of its network to NBNCo. As a result Telstra’s share price rose by 20% in the month. Positions in Medusa Mining, Commonwealth Bank and Pharmaxis also impacted performance in June. Positive contributions were made by a couple of our retail stocks, notably Super Cheap Auto and JB HiFi.
Turnover spiked in June, increasing to more than 9% of the portfolio compared to an average of about 5% for the previous five months. We took profits (decreased the weighting) in a number of stocks that had performed well during the last two months including Cochlear, Medusa Mining and Whitehaven Coal. We also sold out of News Corporation after its share price spiked on the news that they were bidding the remainder of BSkyB. Other activity on the sell side included switching our remaining Woolworths shares into Wesfarmers and switching some Westpac into CBA. On the buy side we added to our Resmed investment. We also added to Woodside, Wotif and our three discretionary retailers; JB HiFI, David Jones and Supercheap Auto. Campbell Brothers was added to the portfolio late in the month.
The cash weighting ended the month at 1.2%.
Sector in Review
The market tried to rally in June but ended the month in poor shape as concerns over the sovereign debt crisis in Europe escalated. The stock market finished the financial year with eight consecutive down days and the 20% annual return that looked possible in the middle of the month dissipated to 13% by the end of June.
The Industrials sector was the worst performer for a second consecutive month, declining by 6.97%. Consumer Discretionary (-5.09%) and Financials (-4.72%) were also weak relative to the rest of the market. The defensive sectors all managed to rise during June. Telecommunications (+9.21%) was strong due to the Telstra/NBNCo deal and Utilities (+1.92%) and Consumer Staples (+0.64%) also posted gains.
Outlook
Volatile conditions persisted in June and look set to continue for some time yet. We are still in a range trading market that has persisted since October last year, though the bias seems to be to the downside currently. Recent economic data from the US, Europe and China indicates that the global recovery is slowing (see chart below), however we think there is a low probability that the US or Europe will experience another recession in the short term. Ironically the IMF has just raised its global growth forecast for 2010 to 4.6% from 4.2% and left 2011 unchanged at 4.3%. The earnings recovery (especially in the US), and low interest rates should add to the bullish case, however global macro concerns will keep the upside capped in the near term. We think the market could fall another 10-20% if the European sovereign debt issue morphs into a banking/liquidity crisis. Alternatively we see any rally capped at around 5000 this calendar year.
Rapid recovery but now expanding at a slower rate
Domestically, we believe that the RBA will not increase interest rates for an extended period, possibly not until calendar 2011. This should be positive for the local equity market, in particular consumer discretionary stocks. We expect the Australian market to perform better once the federal election outcome is known and also when there is evidence that China has eased its tightening stance. The AUD/USD exchange rate is likely to trade in a range between 82-94c for the rest of the year and is less likely to impact the performance of stocks with currency exposure than has been the case over the last 2-3 years. While Australian equities are cheap and represent a similar opportunity to invest as occurred in 1991, 1994 and 2009, they are likely to remain cheap for most of the rest of the calendar year. By the end of the year we expect that the election will be out of the way, we should have more stability in Europe and the domestic economy should be accelerating once more. As a result we should see an improvement in the equity markets as we move into 2011.
Monthly Performance
*After fees.
Performance These figures represent past performance only. Past performance is no indication of future performance. Neither Platypus Asset Management Pty Limited, nor any of its representatives makes any representation as to the future performance or success of the fund. General Platypus Asset Management Pty Limited believes that the information contained in this document is accurate as at this time and date of issue. However, Platypus Asset Management Pty Limited provides no warranty of accuracy or reliability in relation to any information contained in this document and to the extent permitted by laws accepts no responsibility for any loss or damage whatsoever arising in any way for any representation, act or omission, whether expressed or implied (including responsibility to any person by reason of negligence) is accepted by Platypus Asset Management Pty Limited, officer, agent or employee of Platypus Asset Management Pty Limited.