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Portfolio Performance – January 2019


Quarterly Review

It was a turbulent quarter for share markets, with the Australian share market falling 8.98% over the past three months. The Ethical Investment Mid-Cap Model Portfolio performed reasonably well in the downturn with a return of -4.99%, outperforming the benchmark by 3.99% for the quarter. This return was particularly pleasing given that the S&P/ASX Midcap 50 index, which this portfolio has a large allocation to, fell 13.13% for the quarter.

Several of the larger holdings in the portfolio saw poor returns for the quarter, including NIB Holdings (-11%), Challenger (-12%), Freedom Foods (-16%) and TPG Telecom (-23%), however this was somewhat offset by strong returns from G8 Education (+34%), Redflow (+15%), Select Harvests (+11%) and Technology One (+11%).

2018 was a volatile year for share markets, with many of the major global share markets delivering negative returns for the calendar year. This included a negative return of 3.53% for the All Ordinaries Index, and a negative return of 7.38% from the Midcap 50 index. The Australian market has also been dragged lower thanks to the ongoing negativity surrounding the Banking Royal Commission which caused the financial sector to fall 14.78% in 2018.

The Mid-Cap Portfolio outperformed the Australian market in 2018 by 1.09%, partially due to the relatively small allocation to financial stocks, and no allocation at all to the big 4 banks. Strong performances from several stocks including Select Harvests (+30%), Duxton Water (+28%), CSL (+23%) and Meridian Energy (+20%) also boosted performance for the year, as did the favourable takeovers of Sirtex Medical (+94%) and LifeHealthCare Group (+40%).

2018 was a positive year for the Ethical Investment Mid-Cap Portfolio, not just in terms of outperformance, but also in terms of the companies we were able to add to the portfolio during the year. We added companies with positive environmental aspects such as Bingo Industries, Cleanaway Waste Management and Gale Pacific, as well as two renewable energy companies, Mercury NZ and Windlab. We also added companies with positive social aspects including the social infrastructure company, Arena REIT, as well as the healthcare companies, Sigma Healthcare and Cochlear.

In 2018 we also welcomed Mark Forstmann as a new independent member on our investment committee. Mark has over 27 years of experience and assists with financial research, stock selection, and the management of the Ethical Investment Mid-Cap Portfolio.


Portfolio Changes

We took advantage of the market downturn to add three new stocks to the portfolio during the quarter, Medibank Private (MPL), Cochlear (COH), and Spark Infrastructure (SKI).

We also added to several holdings including Challenger Limited, CSL, Bingo Industries, Cleanaway Waste Management and Freedom Foods. Gateway Lifestyle Group was removed from the portfolio during the quarter after it was taken over by a US manufactured housing company, Hometown America Communities.

Cochlear is a manufacturer and distributor of cochlear implantable devices for hearing impaired. Cochlear have operations in more than 20 countries. Cochlear implant is a solution for people with moderate to profound hearing loss. Cochlear’s implant systems comprise an implant which is inserted during surgery and an external sound processor. The external sound processor can be upgraded with new technology as it becomes available.

Medibank Private’s core business is providing private health insurance products through its two brands, Medibank and AHM. It offers Hospital Cover and Extras Cover to customers in Australia as well as health insurance to overseas visitors and students. It also participates in the broader healthcare industry through the provision of integrated healthcare services to policyholders, government, corporate and other customers.

Spark Infrastructure is an infrastructure fund which invests in regulated electricity distribution businesses in Victoria and South Australia. Spark has a 49% interest in two electricity distribution businesses in Victoria (CitiPower and Powercor) which owns and operates the distribution network that supplies electricity to customers in Melbourne’s CBD and inner suburbs. Spark also has a 49% interest in the electricity distribution business in South Australia. Services are provided throughout metropolitan areas, including the capital city of Adelaide.

The contents of this newsletter are intended as general advice only.  No specific person’s circumstances, financial situation or objectives have been taken into consideration.  You should not act on the information provided without seeking personal advice from an appropriately qualified financial planner.   Past performance is no indication of future performance. While the data source has been verified as reliable, the actual content has not been checked for accuracy. Consequently, Ethical Investment Advisers does not warrant the accuracy of the information nor accept liability for any errors in the data. Portfolio inception date for performance calculation purposes is 25/05/2015. The returns shown are estimates only. The returns are for the Ethical Investment Mid-Cap Portfolio on the Hub24 platform and are AFTER investment management fees, but BEFORE administration fees, performance based fees and taxes. The performance returns have been calculated on a daily basis taking into account brokerage costs, and are accumulated for the period shown. Returns are shown as annualised if the period is over 1 year, or as total returns otherwise. and may not match your actual return as this can be affected by the timing of additions and withdrawals, as well as fees and customisations.
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