Welcome to the March 2025 Investment Update for the Switzer Dividend Growth Fund (SWTZ or the Fund).

The Fund’s portfolio delivered a return of -2.84% during the month, outperforming the benchmark S&P/ASX 100 Accumulation Index (ASX 100) return of -3.30%. The ASX 100’s decline was driven primarily by sharp falls in the Technology and Consumer Discretionary sectors. However, this was partially offset by gains in the Utilities sector.

In March, QBE Insurance (QBE) and Newmont (NEM) delivered positive returns for the Fund. Their resilience was due to their subdued market expectations given that their valuation multiples are at near decade lows. Orica (ORI) also outperformed following its Investor Day, where it announced a revised financial framework. Having concluded a series of sizable acquisitions in the last couple of years, ORI has entered a consolidation phase, underscored by a $400 million share buy-back. The company has also indicated it is tracking ahead of plan for the first half of 2025, despite some weather-related disruptions.

The Fund’s relative outperformance was also due to its lack of exposure to major index heavyweights, including Commonwealth Bank (CBA), Macquarie Group (MQG) and Wesfarmers (WES), which collectively make up about 19% of the benchmark. These stocks fell despite the absence of stock-specific news, contributing to a third of the benchmark’s overall negative return. Additionally, Aristocrat (ALL) and Pro Medicus (PME) – both priced for high expectations – experienced significant drawdowns, further weighing on the index.

Conversely, the Fund’s investment in Light and Wonder (LNW) detracted from performance. The company provided an update on ongoing litigation with Aristocrat, which has filed a trade secret misappropriation claim relating to the Jewel of the Dragon game (formerly Dragon Train). LNW is proactively removing affected titles — representing less than 1% of its installed base — and has expanded third-party audits to mitigate further risk. The company intends to respond to the U.S. District Court by 11 April, 2025 and has reaffirmed its FY25 profit guidance.

Australia’s economy exhibits moderate growth amidst global uncertainties. In the December 2024 quarter, Australia’s economy (measured by Gross Domestic Product) grew by 0.6%. The unemployment rate stands at 4.1%, with wages growth moderating to 3.2% year-on-year, and the monthly Consumer Price Index (CPI) aligning with the Reserve Bank of Australia’s target at 2.5% year-on-year. However, global trade tensions, particularly US tariffs, pose risks to Australia’s open economy. Additionally, the RBA has maintained the cash rate at 4.1%, with expectations of future rate cuts if trade tensions impede growth.

Looking ahead, the market landscape remains susceptible to volatility, with areas of pronounced overvaluation. The Fund continues to avoid these areas and remains focused on undervalued stocks. The Fund is well-positioned to generate attractive income and sustainable long-term returns with lower volatility than the benchmark.