The S&P/ASX200 closed 46 points or 0.79% lower over the week, at 5,753.5. After weeks of the stock market being virtually becalmed with a slight negative inclination, Donald Trump’s potential problems with Congress over his health changes raised questions about his likely success on tax reform.
So that’s how the story goes, but it was only part of the tale as the US market’s 12% spike, post-election, meant that a tendency to produce a pullback was always on the cards.
We are in a testing phase for the market’s optimism about Trump’s policies and the economic outlook, which is unambiguously good for the USA. Australia is more than likely set for pretty good growth, China has surprised its doubters, while Japan and Europe are even bringing economic optimism to the table! Not many experts predicted that six months ago.
Around May is often a tricky time for stocks, but if the US President wins the day in Congress we could see another leg up. If he loses, the negative story for stocks will depend on how badly he loses.
I’m punting/investing on a win for that wild and wacky guy called Donald Trump.
In today’s investor note, we provide a mid-month update from our Investment Adviser, we look at one of the stocks in the portfolio, and provide the dates for your quarterly distribution payments.
Portfolio update from our Investment Adviser
The fund was successfully launched and materially invested over March. Dividends were captured in various stocks and are being held with payment of the inaugural dividend in April. The current cash levels are around 2%.
The portfolio holds a selection of strong franchises with a blend of growth and high dividend yields. Currently, the portfolio is expected to pay a gross yield of around 6.1%. Expected earnings growth of the portfolio is comfortably in double digits.
The fund holds a modest overweight in global cyclicals again biased towards companies with strong balance sheets and large free cash flows. Balancing this exposure is an overweight in banks and utilities that provide strong dividend streams.
The portfolio is positioned to weather expected volatility in the market, with a spread of sectors and a bias towards large companies and quality franchises. The fund will take advantage of any opportunities that this volatility uncovers.
Stock in the spotlight: AGL
Every two weeks, our portfolio manager will provide an update on one of the stocks held in the Switzer Dividend Growth Fund. This week, we look at AGL.
In the past, Australia was a land of low energy costs driven by abundant and low cost coal and gas resources. However, two changes in recent years have changed the landscape dramatically.
Firstly, legislative reform drove a change in the mix of assets producing electricity. The large coal fired base load plants were penalised and renewable energy, such as wind and solar, were promoted.
However, this was not a smooth process, with various Governments changing the agenda and upsetting the build out rate. The upshot of this was a reduction in the supply of electricity into the market. Also, because renewables need the sun to shine and the wind to blow, gas generation became important to fill the gap.
Secondly, several large plants were constructed in Gladstone in Queensland to export huge quantities of liquefied gas. The gas market tightened dramatically as the exporters sucked in all available gas. Higher gas prices were the result.
Higher gas prices are leading to higher electricity prices. The theme could have a long way to run.
Those companies supplying electricity, but not exposed to the cost pressures, are set to markedly benefit from these changes. Chief among these is AGL Energy, which is held in the Switzer Dividend Growth Fund.
Our investment committee has confirmed the dates for the quarterly distribution. The ex-distribution dates are expected to be:
- Thursday, 13 April 2017
- Friday 14 July 2017
- Friday, 13 October 2017
- Friday, 12 January 2018
Once we have calculated the value of the April dividend we will announce it to the ASX and on our website. This is expected to occur on Friday, 7 April.
Payment is expected to be made on Friday, 28 April.
Thanks again for your support and if you have any questions please email us at email@example.com or call us on 1300 794 893.