IML aims to 'stay the course' despite losses
Despite losses over the last year, Investors Mutual (IML) aims to “stay the course” and focus on the fundamentals of equity income investing.
According to FE analytics, the IML Equity Income fund lost 17.57% over last 12 months to 30 September, 2020, versus a loss of 9.96% for its benchmark the ASX 300 and a loss of 10.64% for the Australia equity income sector.
It was the first quarter where the fund didn’t have a substantially better drawdown experience in the market.
Michael O'Neill, portfolio manager at Investors Mutual, said in the context of 20 years’ of managing equities this year had been an anomaly and one they did not expect to be repeated.
“What happened in that period is we came into February with what we thought was a defensive portfolio, economically speaking,” O’Neill said.
“In particular we held a lot of gaming stocks like Tabcorp, SkyCity and Crown – all valuable long-term licences, all steady balance sheets and cashflows, but they sold off 30%-40%.”
“Since then we’ve seen a snapback rally in the market, we’ve seen defensive – non-bank industrial – stocks lag.”
O’Neill said when looking at the peak of the market on 20 February, compared to today, what had driven relative performance was strong-performing sectors like resources and tech.
“Namely, the resources – particularly iron ore like Fortescue, Rio and BHP – and tech like Afterpay,” O’Neill said.
“These don’t fall within our usual opportunity set because they don’t have the characteristics we’re after, and certainly a lot of non-bank industrials have been left behind.
“In a low-rate interest environment, we think these are the stocks that will shine and certainly as the economic reality becomes clear as we head into a recession, these stocks will have capital preservation in the future.”
O’Neill said it was clear we had seen index yields challenged and that stepping away from speculative companies was how they had confidence in achieving the firm’s yield targets.
“We’ve seen about a third of the companies on the ASX300 substantially cut dividends by up to 15%,” O’Neill said.
“We’ve seen $40 billion of capital raised across 35 companies so that’s diluted earnings and dividends.
“What that means is focusing on defensive companies like chemicals, staples, utilities, healthcare – not the cyclicals.”
Performance of the IML Equity Income fund over the 12 months to 30 September 2020
AUTHOR
Chris Dastoor
Recommended for you
After introducing its first active ETF to the Australian market earlier this year, BlackRock is now preparing to launch its first actively managed, income-focused ETF by the end of November.
Milford Australia has welcomed two new funds to market, driven by advisers’ need for more liquid, transparent credit solutions that meet their strong appetite for fixed income solutions.
Perennial Partners has entered into a binding agreement to take a 50 per cent stake in Balmoral Investors and appoint it as the manager of Perennial's microcap strategy.
A growing trend of factor investing in ETFs has seen the rise of smart beta or factor ETFs, but Stockspot has warned that these funds likely won’t deliver as expected and could cost investors more long-term.
