Rudi’s View: All-Weather Portfolio In 2023

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The story below was originally published in late November 2023. Performance indicators for the All-Weather Model Portfolio were drawn from preliminary estimates and have proven to be too low for the short term (2023) and too high for the post-covid years.

To set the record straight, below is the performance update as per 31 December 2023, straight from Dash (formerly WealthO2), the platform on which the portfolio is managed.

In this week's Weekly Insights:

-All-Weather Portfolio In 2023
-Conviction Calls & Best Ideas

By Rudi Filapek-Vandyck, Editor

All-Weather Portfolio In 2023

This week I am visiting Melbourne on invitation of the Big Australian, BHP Group ((BHP)), hence this week's Weekly Insights is written from an inner-city, Melbournian hotel room. It's been raining outside.

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It's not an exaggeration to state the post-covid years have been tough on most investors, with plenty of angst and threats forcing financial markets through volatile swings and roundabouts.

At the macro level, 2021 was all about the post-pandemic recovery and whether the comeback of inflation would prove temporary, but then came 2022, and central bank tightening; it was not much fun.

That much maligned big bear market did not arrive, however, but 2023 has nevertheless still managed to disappoint most. We've seen rallies, and retreats, discussions and debates, the public arrival of AI, but ultimately this year shall be characterised by low volumes, low conviction, lots of trading and very little in sustainable gains.

At least such seems to be the experience for those investors whose main focus is on the Australian exchange.

Performances from indices and general impressions are not every investor's game, and if we dig deeper below the surface of the ASX there are plenty of positive surprises to be found.

Take the banks, for example, prime point of attention for just about everyone in Australia.

The regionals haven't performed well; luckily they pay franked dividends. Sector laggards ANZ Bank ((ANZ)) and Westpac ((WBC)) have more or less kept track with the resources heavyweights BHP Group and Rio Tinto ((RIO)) in generating between high single digit and low double digit share price appreciation for the past three years (in total, not per annum).

All have paid out above-average dividends to shareholders, no doubt yet again highlighting the importance of dividends to many an investor.

It might come as a surprise, however, share prices of National Australia Bank ((NAB)) and CommBank ((CBA)) are up circa 24% and 26% respectively since 1st January 2021. Add six half-yearly dividends and the return from the outperformers can only be described as "excellent", in particular when placed in the context of all that has happened over the past three years.

Note: CommBank shares, despite being the most "expensive" and least liked (pretty much as a standard setting) have once again crowned themselves as the best performer in the Australian banking sector. It's by no means a one-off experience.

What NAB and CBA are suggesting is that investing in the post-covid era is dominated by share market polarisation and thus investment returns are heavily influenced by which stocks in particular are included in the portfolio, and -equally important- which stocks are not.

Avoiding major disasters from a2 Milk ((A2M)), AMP Ltd ((AMP)), Bega Cheese ((BGA)), Chalice Mining ((CHN)), Cromwell Property Group ((CMW)), Healius ((HLS)), Iress ((IRE)), Lendlease ((LLC)), Link Group ((LNK)), and the likes would have gone a long way to achieving decent return from the share market, and with less headaches too.

In the same vein, those who jumped on board the momentum train for specific market segments such as oil and gas, battery minerals, and coal have equally come to appreciate the all-importance of having a timely exit strategy.

All-Weather Portfolio

The experience of the FNArena/Vested Equities All-Weather Model Portfolio pretty much mirrors that of the broader market; many portfolio constituents have been lagging, for a variety of reasons, while others have outperformed expectations.

When I recently checked the returns for 2021-2023 (up until late November), I discovered the average for 2021 and 2022 was shy of 14% while the return to date for calendar 2023 is equally below 14% post last week's general market retreat.

These numbers are better than the local index, also highlighting for investors the market is not by definition the index, and vice versa.

These numbers also prove that sticking by High Quality companies with a long-term growth trajectory that fall temporarily out of favour, think CSL ((CSL)) and ResMed ((RMD)), does not automatically translate into a disappointing outcome overall.

So which companies can be held mostly responsible for the Portfolio's return in 2023?

2023 Winners & Losers

Car Group ((CAR)), previously known as Carsales, has been an outstanding performer, even though rising bond yields in 2022 proved the obvious headwind. Participating in the capital raise earlier in the year was a no brainer.

TechnologyOne ((TNE)) has been an excellent and consistent performer too. No other constituent is able to match TechOne's consistency, but 2023 has given plenty of opportunity to shine to the likes of Aristocrat Leisure ((ALL)), Goodman Group ((GMG)), NextDC ((NXT)), even Wesfarmers ((WES)).

The decision to permanently have some exposure to gold, and to increase that exposure in 2022, has also contributed positively this year.

Equally important, when mayhem hit global markets throughout 2022, the Portfolio moved a large chunk into cash, which limited losses last year. In 2023, some of the new allocations have proved quite fortuitous, including in Dicker Data ((DDR)), HUB24 ((HUB)), REA Group ((REA)), and WiseTech Global ((WTC)).

Some of these allocations were made near the bottom of share prices in October, in line with my Weekly Insights at the time describing equities as technically over-sold and poised for a rally.

The Portfolio is not always able to time its decisions as perfectly as in October. Apart from the positive contributions to this year's performance, we're delighted to once again own a piece of some of the most robust and reliable growth stories on the ASX.

Moving to a safer cash buffer in 2022 meant we had to let go of companies we'd like to own longer term. As the saying goes: no omelet can be made without breaking some eggs. In hindsight, all we had to do was stay true to our conviction, remain disciplined along the way, and wait for market volatility to give us opportunities.

Did we have doubts along the way? Questions? Dilemmas? You bet. The end outcome is but a tiny piece of this story. Then again, we should always remain cognisant we are running a marathon, not a 60 meters indoor sprint.

Next month we'll be celebrating holidays and the start of a new calendar year, but there are no guarantees the quarters ahead will be any easier. Ask any economist, even the ones with a more rosy picture in mind, and they all are bracing for slower economic momentum ahead.

On the other hand, falling inflation and lower bond yields offer support for equities generally, all else remaining equal. As per always, none of this will move in a straight line, without any interruptions.

The most-used credo in the stock market is investors should be on the lookout for shares that are worth one dollar but that can be bought for less, maybe as low as 60c or even cheaper.

This has never been the specific strategy for the All-Weather Portfolio which on occasion is content to pay more than one dollar for shares in a company, knowing the value of the shares will increase towards $2, and even more thereafter.

The fact this upside potential has not revealed itself in the past three years has not reduced our confidence in the outlook for CSL and ResMed, or Woolworths Group ((WOW)), or Macquarie Group ((MQG)).

Among smaller cap companies, the likes of IDP Education ((IEL)) and Steadfast Group ((SDF)) have equally failed to fire up this year, without a deteriorating outlook operationally.

The next round of re-assessments will arrive with the delivery of interim and full-year financial results in February.

Meanwhile, the biggest mistake for investors to make is to assume real opportunity in the share market only presents itself in the form of a subdued PE ratio; see AMP, Iress, and the likes.

The February results season will once again prove just that.

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The All-Weather Model Portfolio is based upon my research into All-Weather Performers on the ASX.

Paying subscribers have 24/7 access to my research via a dedicated segment on the website.

The Portfolio does not own all the stocks mentioned, but cherry picks predominantly from the selections and lists available on the website.

https://www.fnarena.com/index.php/analysis-data/all-weather-stocks/

More reading/recent editions:

–Quality In Stocks, What Is It Good For?

https://www.fnarena.com/index.php/2023/11/22/rudis-view-quality-in-stocks-what-is-it-good-for/

-Between Perception And Reality

https://www.fnarena.com/index.php/2023/11/15/rudis-view-between-perception-reality/

-Outlook 2024, Is History Our Guide?

https://www.fnarena.com/index.php/2023/11/08/rudis-view-outlook-2024-is-history-our-guide/

Conviction Calls & Best Ideas

Ord Minnett just released its inaugural Analysts' Conviction List, which is to be interpreted on a 12 months horizon.

The selection starts off with 10 stocks:

-Acrow Formwork and Construction Services ((ACF))
-Alliance Aviation Services ((AQZ))
-ARB Corp ((ARB))
-Cosol ((COS))
-EQT Holdings ((EQT))
-Lindsay Australia ((LAU))
-Ramelius Resources ((RMS))
-Sandfire Resources ((SFR))
-Waypoint REIT ((WPR))
-Webjet ((WEB))

FNArena Subscription

A subscription to FNArena (6 or 12 months) comes with an archive of Special Reports (20 since 2006); examples below.

(This story was written on Monday, 27th November, 2023. It was published on the day in the form of an email to paying subscribers, and again on Wednesday as a story on the website).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's – see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: contact us via the direct messaging system on the website).

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