Welcome to the October 2021 Investment Update for the Switzer Dividend Growth Fund (SWTZ or the Fund). Click here to download the report.

Performance Summary

The portfolio delivered a positive return of -1.09% over the month of October, compared with the S&P/ASX 200 Accumulation Index return of -0.10%.

Over the past 12 months, SWTZ has paid a distribution yield of 3.29%, or 4.63% including franking credits. Distribution yield is calculated as the distributions received over the 12 months to 31 October 2021 relative to the price at the beginning of the period.

Given its focus on income and capital preservation, over the long term we expect SWTZ to marginally underperform in rising markets and marginally outperform in falling markets.

Portfolio Commentary

With the Australian equity market returning more than 70% since the pandemic lows of March 2020, the recovery in stock prices moderated in October, with the ASX 200 finishing marginally lower by 0.1%.

A growing myriad of challenges are weighing on equity markets, including supply chain bottlenecks, energy prices grinding higher, financial deleveraging in China, the persistence of the COVID-19 Delta variant and rising bond yields as central banks begin tightening liquidity conditions. Collectively, each of these factors has heighten investor uncertainty. Yet encouragingly, it is pleasing to observe that the latest AGM and quarterly updates have delivered more positive than negative surprises in terms of current trading conditions and earnings guidance. Despite many companies highlighting supply chain and cost challenges, there have been more upgrades than downgrades to earnings estimates.

At a portfolio level, the 1Q21 earnings results can be classified as:

• Upgrade to earnings – Healius (beneficiary of elevated COVID-19 testing); Goodman Group (lifted FY22 earnings per share guidance to +15%); Macquarie Group (elevated trading, investment income and asset sales); News Corp (stronger than expected digital real estate).
• Confirmed guidance – Amcor and Brambles (successfully navigated elevated inflation using pass through cost mechanisms and pricing power); CSL (ongoing recovery in plasma collections).
• Downgrade to earnings – Westpac (disappointing execution on margins and expenses).

The reopening of economies has led to a significant increase in the demand for energy. Global oil demand has rebounded at a time when there is a lack of new supply. The combination of rising demand and shortages in energy supply has ignited prices for both oil and gas. For now, the portfolio retains an investment in Ampol and Santos as both companies benefit from current favourable industry conditions. Yet the sunset for the fossil industry has begun and it is imperative for energy companies not only to lower their carbon emissions, but transition to a greener energy footprint.

In summary, there is growing confidence that we are now facing a clearer path to normalisation over the summer months with the end of State lockdowns and the reopening of international borders, providing further support of a rebound in economic activity. While monetary policy measures may begin to tighten modestly, we expect fiscal stimulus may re-emerge as we head toward a federal election in 1H calendar 2022. Overall, the portfolio retains its focus on companies that can deliver long-term profit and dividend growth.

Investment Objective

The Switzer Dividend Growth Fund is an income-focused exchange-traded managed fund with a mix of yield and quality companies. The objective of the Fund is to generate an above-market yield while maximising franking where possible and deliver capital growth over the long term. We select companies that, in aggregate, generate sustainable dividend income. The Fund is characterised by a strong and diverse portfolio of companies that exhibit good cash flows and strong business models.