Rudi’s View: All-Weather Portfolio in FY24; Growth Not Value

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Jul 10 2024

All-Weather Portfolio in FY24; Growth Not Value

By Rudi Filapek-Vandyck, Editor

We all experience the share market through our own portfolio, which might explain why so many voices remain downbeat, if not straightforward negative about the local market and its prospects.

In contrast to general sentiment, the ASX200 just clocked off its second successive double-digit financial year return, coming in at 11.78%. One year ago, FY23 returned 14.80%.

Total return over the past ten years has averaged no more than 8.06%, and that number includes the past two years, so the absence of the sound of champagne corks popping seems a bit odd. But share prices have been more volatile than many can bear during the best of times.

Above all: the bifurcation underneath the headline performance remains extreme, with many more stocks not performing and a select group of popular names generating all the rewards. Investing in the share market is seldom a walk in the park. Whenever it is, the sunny conditions don't last for long.

Outside of the Winners circles, Australian equities have been overwhelmingly frustrating, deflating, gut-wrenching, and, at times, de-moralising. Unless one's portfolio owned plenty of supercharged Winners. But even then, the optics remain important and Australia looks bleak against the outsized gains yet again achieved in the US.

The Nasdaq100 index, as its website proudly shows, has returned 55% over twelve months, 177% over five years, and 419.34% over ten years (all data as of 4 July 2024).

We need not look any further as to why general sentiment is far from ebullient among local investors. But as said, total return has been above average for the second year in a row, and the all-important banks have been among the strong outperformers.

The FNArena-Vested Equities All-Weather Model Portfolio does not invest in popular banks or resources companies, but instead attempts to identify local companies of higher quality, with robust growth prospects, underpinned by continuous re-investments and a leading market position.

This focus has served the Portfolio well. Total return pre-fees for FY24 has been 18.28%. Last year, total return slightly underperformed on 12.71%. The year prior, in FY22, the Portfolio kept the damage limited to -2.59% for an average three-year return of 10.43% p.a. against the ASX200 Accumulation index's 6.27%.

Many Lessons To Be Learnt

What usually happens is I start now highlighting the Big Winners that have contributed to the sizeable Portfolio outperformance, but maybe it's equally important to acknowledge not all Portfolio constituents have been a Winner over the past three years.

As per always, disappointments do occur and the biggest disappointment for the All-Weather Portfolio has been education services provider IDP Education ((IEL)).

When asked in late 2022 about my favourite stock for the year ahead, I had little hesitation to nominate IDP Education. The company is a global market leader in its field and benefiting from the desire of parents in emerging countries such as China and India to send their offspring to universities in the UK, Canada and Australia.

Competitiveness has increased in the sector, but what really changed sector dynamics is a deliberate push back against student immigration by governments in those destination countries. Instead of reaching for new highs, the share price has more than halved over the past 17 months.

Observation number one: this has not prevented the Portfolio overall to put in a market-beating performance. Other inclusions like CSL ((CSL)) and ResMed ((RMD)) have equally not kept up with the index in recent years, but none of this means the Portfolio cannot still (out)perform.

Harry Hindsight is a wise man, of course, and always knows best after the facts. Admittedly, if I'd known with 100% certainty these share prices were heading for much lower price levels I would not have hesitated to sell and get back on board near ground zero, but investing is seldom that straightforward, just ask the many shareholders in large swathes of micro- and small-caps and in lagging value stocks today.

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