We’re contemplating a number of amendments in the Income Portfolio as we position for what comes next. Today’s portfolio update will simply detail our current thinking, not yet our planned actions:
- The portfolio is currently positioned with a ~63% allocation to equities, ~32% in fixed income including Hybrids, ~4% in property and ~1% in cash
- The Crown Hybrid (CWNHB) is akin to cash, given the intention to redeem has been issued. MM will get $102.75 back for this security on or around the 28th July. The last day of trade on the ASX is 15th July. With the notes trading ~$1 below the redemption price, we will hold unless a very compelling opportunity arises.
- Insignia Financial (IFL) is the renamed IOOF wealth management business that we have held since late 2020 as an inexpensive turnaround opportunity. We are currently down ~8% on the position & we are losing patience.
- Smart Group (SIQ) downgraded earnings expectations while they also lost a major customer. We have been very positive on SIQ for an extended period of time, however, the earnings outlook is now flat, rather than growing at ~8% as we expected which would have driven dividend growth over time. At MM we prefer to have dividend growers in the income portfolio. We are reconsidering this position which is up ~10%.
- APA Group (APA) is now on the expensive side, however, we believe quality infrastructure should remain a core holding. While we are not buyers at current levels, we will retain APA despite being up ~40% on the position. For new subscribers to MM, buying a pullback makes more sense. The same comments apply to Transurban (TCL).
- Cutting Magellan (MFG) before the end of the financial year could make sense, allocating funds into Pendal (PDL) as discussed yesterday which has some takeover appeal.
- Property stocks & retailers have been sold off heavily. While we think the trend could go further, we are very cognisant of the deep value in this space for income investors with a medium-term horizon, such as ourselves. Remember, stocks price 6 months ahead of time, not the now. Companies impacted by the thought/expectation of recession will bottom when the rhetoric is dire.
