Trump’s tariffs and his trade war threat

Just when the stock market looked like it was going to be great for our SWTZ fund, along came Donald Trump’s trade war threat! When it all started last Friday in the US and Saturday morning our time, this is what I wrote in our Switzer Report:

“You don’t have to be me to work out that the Trump tariff tantrum ruined what could have been an OK week for the local stock market. “I know this because my fund SWTZ saw $2.59 earlier in the week and then finished at $2.54!

The President’s bad decision to fire the first US shots in a trade war is a new curve ball for stocks. It makes me think that if ever I’ve said anything nice about Donald Trump, I’d like to tone down those endorsements.

Happily, the news out on Tuesday was that the President could be using negotiating tactics for a better NAFTA deal with Canada and Mexico. And his House Speaker Paul Ryan was opposed to his tariff play, so it might not ever make it into law.

All up, I expect stocks to rise this year and take our fund’s unit price higher, but I expect a fair bit of volatility. What does that mean? It’s a lot of ups and downs for the stock market, but on a rising trend.

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President Donald Trump signs a proclamation on steel imports during an event in the Roosevelt Room of the White House in Washington, Thursday, March 8, 2018. He also signed one for aluminium. (AP Photo/Susan Walsh)

From our Investment Adviser: Portfolio update

The portfolio performance was flat in February. Against this, the All Ordinaries was 0.2% higher, the ASX200 0.4% higher and the Dow Jones was 4.3% lower. Overall, the Australian markets were relatively resilient compared to modest falls in offshore markets. However, the Australian market had previously not rallied as hard.

February was reporting season, with many companies reporting their earnings numbers for the last six months. Dividends were announced as well. Of the 32 stocks1 in the portfolio that reported this season, 31 have done so. Of these, 25 reported higher dividends, three were flat and three were lower.

The median increase for the portfolio was +4.8% and weighted average +15.7%. The returns can be compared to market heavyweights CBA (+1%) and Telstra (-29%) which dragged the chain. We are happy with the overall increase in dividends for the portfolio this period.

The portfolio holds a position in Woodside Petroleum which announced a surprise rights issue and a slew of growth projects. The company is the only major energy stock that offers an attractive yield, has a strong balance sheet and low costs of production.

Despite a strong result announced, with dividend up 18% in line with profits, the market took the capital raising poorly due to it not being expected and the stock was sold down. We continue to hold the position and foresee a recovery over time. All other contributors were within expectations.

1. Stocks included are all those non-REIT companies reporting held this period. Full year results are compared year-on-year, half year results compared half-on-half.

Upcoming distribution

The next distribution is coming up in April. The ex-date is expected to be April 2, and payments should start arriving in bank accounts by the 17th.

Thanks again for your support and if you have any questions please email us at invest@switzer.com.au or call us on 1300 794 893.

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