Welcome to the February 2025 Investment Update for the Switzer Dividend Growth Fund (SWTZ or the Fund).
The Fund’s portfolio delivered a return of -3.51% during the month, compared with the benchmark S&P/ASX 100 Accumulation Index (ASX 100) return of -3.91%. The decline in the ASX100 was driven primarily by sharp falls in the Technology and Healthcare sectors. However, this was partially offset by gains in the Utilities sector.
February’s reporting season was once again characterised by extreme volatility. Within the ASX100 index, stock performances ranged widely – The A2 Milk Company (A2M) surged 35% to lead the pack, while Mineral Resources (MIN) plummeted 35% as the weakest performer. Amid these extreme outcomes, the Fund navigated the turbulent conditions reasonably well. Investments in Light & Wonder (LNW) and Brambles (BXB) performed well. LNW’s stock price rallied after posting 24% profit growth, reinforcing our belief in its full year 2025 earnings target of US$1.4 billion. Dual listed in the United States and Australia, LNW is now exploring a sole ASX listing to address its undervaluation – a compelling case when its closest peer, Aristocrat (ALL), commands a 30% price-to-earnings premium despite LNW’s expected profit growth being double ALL’s pace.
BXB delivered a solid half-year result with 10% earnings growth. We were pleased by its operating leverage, as productivity gains and efficiency measures widened profit margins, reinforcing earnings guidance of an 8-11% earnings increase for the full year. A welcome surprise came from an upgraded free cash flow outlook, driven by lower capital expenditure. Despite recent gains, BXB’s price-to-free-cash-flow valuation lingers near a decade low, signalling that the market has not appreciated the vast improvement in the quality of its business. In addition, the Fund benefited from its underweight position in the overpriced Banking sector, as lacklustre results triggered heavy selling in several names. Conversely, the Fund’s investment in Block Inc. (XYZ) weighed on performance. Despite a robust 69% growth in earnings for the 2024 financial year which met market expectations, the market fixated on softer than expected revenue in the December 2024 quarter. Importantly, the company reaffirmed its 2025 guidance of at least 15% gross profit growth which, alongside its path to a Rule of 40 (combined profit and sales growth of 40%) by 2026, underscores its potential for robust returns. With a price-to-earnings-ratio of 13 times, its valuation is considered extremely undemanding for a firm with double digit earnings growth.
On 18 February, the Reserve Bank of Australia (RBA) cut interest rates for the first time in more than four years, reducing its cash rate target by 0.25 of a percentage point to 4.1%. Despite this move, the RBA is expected to proceed cautiously with further cuts due to sticky services inflation and a tight labour market. Looking ahead, the market landscape remains susceptible to volatility, with pockets of extreme overvaluation. By avoiding these areas and focusing on undervalued stocks, the Fund is well-positioned to generate attractive income and sustainable long-term returns. The Fund remains focused on delivering higher income and lower volatility than the ASX100, with the potential for capital growth.
DISCLAIMER: AGP Investment Management Limited (AGP IM) (ABN 26 123 611 978, AFSL 312247) is a wholly owned subsidiary of Associate Global Partners Limited (AGP) (ABN 56 080 277 998), a financial institution listed on the ASX (APL). AGP IM is the Responsible Entity and Vertium Asset Management Pty Ltd is the investment manager of Switzer Dividend Growth Fund - Active ETF (ARSN 614 066 849) (the Fund).
This material has been prepared for general information only. It does not contain investment recommendations nor provide investment advice. It does not take into account the objectives, financial situation or needs of any particular individual. Investors must, before acting on this material, consider the appropriateness of the material.
Any references to ‘We’, ‘Our’, ‘Us’, or the ‘Team’ used in the context of the portfolio commentary, is in reference to Vertium Asset Management Pty Ltd, as investment manager for the Fund.
Neither AGP IM, AGP, their related bodies corporate, entities, directors or officers guarantees the performance of, or the timing or amount of repayment of capital or income invested in the Fund or that the Fund will achieve its investment objectives. Past performance is not indicative of future performance.
Any economic or market forecasts are not guaranteed. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided that the positions will remain within the portfolio of the Fund.
Investors should seek professional investment, financial or other advice to assist the investor determine the individual tolerance to risk and needs to attain a particular return on investment. In no way should the investor rely on information contained in this material.
Investors should read the Fund’s Product Disclosure Statement (PDS) and consider any relevant offer document in full before making a decision to invest in the Fund. The Fund’s Target Market Determination and other relevant information can be obtained by visiting www.associateglobal.com.
