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2014/2015 Portfolio Performances

Your diarist welcomes you back for the July edition of the Burrell Blog. In this edition, Chris provides an overview of the 2014/2015 Portfolio Performances, and identifies key catalysts for the results. 

Portfolio Performance Year Ending 30 June 2015

Overall, the year was flat domestically with the S&P / ASX 200 finishing up 1.17% though with notable volatility in the market.

Including the reinvestment of dividends the result was 6.07%.  Across the various sectors, returns varied considerably with positive returns for Industrials (12.41%) and A-REIT (15.51%).  Materials (-10.43%) and Energy (-10.00%) fell considerably.  The dramatic falls in commodity prices impacted the 6 months to 31 December 2014.    The Australian banks ran up in the March quarter, but lost all the gain in May / June.  Deterioration continued in commodity prices including iron ore, coking coal and oil.  Small Ordinaries (-2.75%) underwhelmed during the period.  It was similarly flat internationally with the MSCI returning -1.09%.  However overall the Dow was in positive territory at 4.70% during the period.

  1-Jul-14 30-Jun-15 Movement
S&P / ASX 200         5,396         5,459 1.17%
S&P / ASX 200 Accumulation Index       45,822       48,602 6.07%
S&P / ASX 200 Industrials        4,029         4,529 12.41%
S&P / ASX 200 Materials         9,743         8,726 -10.43%
S&P / ASX 200 Energy         9,695         8,726 -10.00%
S&P / ASX 200 A-REIT         1,070         1,236 15.51%
S&P / ASX 200 Small Ordinaries         2,131         2,073 -2.75%
MSCI         1,755         1,736 -1.09%
Dow Jones Industrial Average       16,828       17,619 4.70%


The market correction in May and June 2015 was largely attributable to concerns surrounding Greek membership of the Eurozone.  Greece is a relatively small contributor to European GNP and much of its debt is owned by the European Central Banking authorities and the International Monetary Fund.  Burrell took the view that it was unlikely any outcome of the Greek negotiations would cause real economic damage.

Post the GFC, there was considerable work undertaken around the world concerning sovereign defaults.  Readers may recall consideration by your diarist of research from Kenneth Rogoff from Harvard University.  It transpired that most countries of the world have defaulted at some time on sovereign debt, including the Bank of England under King John which caused large bankruptcies to the Venetian merchants.

Your diarist wonders why Greece didn’t default some time ago.  Whereas individuals have difficulty going bankrupt and maintaining their assets, countries have the luxury of defaulting and continuing to maintain their internal revenue streams.

There was of course a myriad of commentary about the Greek situation because it raises interesting issues.  Some senior economists in America have long held the view that the Eurozone is inherently unstable, because to have monetary union without fiscal union or integration of the governments of Europe will inevitably fail as a nation model.

Burrell took the view that looking through this noise, we had a negative sentiment event which might well provide a useful buying opportunity.  Following two months of decline, the market had fallen from 5,950 to 5,350 on 29th June i.e. by 600 points or 10%.  Those two days when the media frenzy was at its highest was so far the best buying opportunity.  There was a second period around the 9th July when the market again dipped.  Since that time, markets have regained around 300 points or 5% of the 10% drop.


Where to from here?

The correction of the banks from being fully valued to over-valued to now being under-valued (NAB, ANZ, WBC) to fairly-valued (CBA) has provided a further opportunity to add yield and capital gain to portfolios, given the low returns from fixed interest markets.

The continuing poor news flow concerning oil, iron ore and other selected commodity prices means that rotation into sectors without these ongoing risks is a key focus of portfolio reviews.

It is important that we look to value rather that to sentiment.  The old adage ‘buy in gloom and sell in boom’ is another way of saying be a value investor, not caught up in the negative Greek sentiment.

There are a number of stocks where we can see 15% returns including dividend yield and these are worthy of consideration.   From the sectoral viewpoint, the out of favour sectors include media.  Media stocks are trading at approximately half the valuation multiples of this sector overseas.

The poor returns of the newspaper groups such as Fairfax has spilled over to the free-to-air television networks.  We suspect this is a mispricing and time spent considering the media sector may be well rewarded down the track.  It is interesting that a number of active investors from the USA have taken stakes in Australian media stocks on a reasonably non-discriminatory basis.

Internationally, the drivers for a stronger US dollar appear to still be in place.  One may have thought that a fall from $1.10 AUD/USD to $0.75 would be close to the end of the adjustment.  But the continuing commodity price weakness together with the strength in the US economy have economists continuing to question whether the Australian dollar may go even lower and the Reserve Bank continues to talk down the value of the Aussie battler.

While from the currency focus transferring funds continues to make sense, international markets are not uniform.  The US market has enjoyed a significant increase in value.   At a presentation from Schroder’s, the fund manager several months ago they showed a chart of over-valuation and the two high points i.e. being most over-valued were CBA (Commonwealth Bank) and the US market.  Of course the CBA has fallen 10% since that presentation, but the US market has not.

There is a tendency from the press to assume that Australia blindly follows overseas markets.  In fact overseas markets are a series of markets.  Research indicates that country stock markets are much more likely to follow the underlying value of the economy than some international index.

Given that those businesses are operating in those economies, it makes common sense that Japanese stocks are more likely to follow the Japanese economy than other economies, UK stocks more likely to follow the UK economy, etc.  This means that an approach which looks to be careful of the US market and to apply the same disciplines that we apply to domestic stocks is likely to reward overseas investment.

A lesson of the past 18 months is that portfolios would have performed better by diversifying overseas.  We need to be careful though not to rush into the US market when there may be a correction around the corner.  Burrell looks to our agents and correspondents overseas to provide research and recommendations to assist in the selection of international stocks and independent research in respect of the selection of managed funds.

We encourage readers to look at this period of negative sentiment as an opportunity to find value in the markets and to grind out returns which are superior to the current low interest rates of under 3.00%.

Happy Investing …

Chris Burrell

Managing Director

If you would like to further discuss, feel free to leave a comment or send me an email This email address is being protected from spambots. You need JavaScript enabled to view it..


Disclaimer & Disclosure: Burrell Stockbroking Pty Ltd and its associates state that they and/or their families or companies or trusts may have an interest in the securities mentioned in this report and do receive commissions or fees from the sale or purchase of securities mentioned therein. Burrell Stockbroking and its associates also state that the comments are intended to provide information to our clients exclusively and reflects our view on the securities concerned and does not take account of the appropriateness of the recommendation for any particular client who should obtain specific professional advice from his or her Burrell Stockbroking Pty Ltd advisor on the suitability of the recommendation. Whilst we believe that the statements herein are based on accurate and reliable information, no  warranty is given to its accuracy and completeness and Burrell Stockbroking Pty Ltd, its Directors and employees do not accept any liability for any loss arising as a result of a person acting thereon.

This document contains general securities advice only. In accordance with Section 949A of the Corporations Act, in preparing this document, Burrell Stockbroking did not take into account the investment objectives, financial situation and particular needs ('relevant personal circumstances') of any particular person. Accordingly, before acting on any advice contained in this document you should assess whether the advice is appropriate in the light of your own relevant personal circumstances or contact your Burrell Stockbroking advisor.

Burrell Stockbroking Pty Ltd (ABN 82 088 958 481), a Participant of the ASX Group and the NSX.
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