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Active Income Portfolio

The Market Matters Active Income Portfolio provides an active approach to income producing equities, ETFs and listed Income Securities – Click here to view

The Income Portfolio is up +1.97% since our last update although it fell marginally this week, down by -0.20% in a market that lost more than 2% while cash remains at ~4%.  AGL Energy (AGL) was the main winner up +10.30% supported by BHP +5.36% & Alumina (AWC) +3.88%. On the flipside, Metcash (MTS) fell -4.47% while Smart Group (SIQ) was down by -4.19%.

There are a few things catching our eye in this portfolio worth mentioning:

  • Margins across bank hybrids contracted further in December which meant prices went higher. The average margin has moved from above 2% to be nearer 1.8%. This is a result of a lack of new supply at a time when investors are (rightly) looking for floating rate securities. The yields to first call however have risen due to the rise in future interest rate expectations with yields of 4% or better achievable on hybrids with 4+ years to run. We continue to like bank hybrids.
  • The Supermarkets collectively have been hit on supply chain issues. While we have a preference at current prices for Metcash (MTS) which we hold in the Income Portfolio, both Coles (COL) & Woolworths (WOL) will look interesting if the slide continues. WOW has traded from ‘exceptionally  expensive’ on over 30x earnings, to moderately expensive on 26x  earnings. We would have interest in WOW nearer ~$32.
  • AGL Energy (AGL) was upgraded this week by Credit Suisse to a buy equivalent and $8.50 price target. The stock hit $7 yesterday and is up 10% for the week. Our thesis for buying AGL was on the imbedded value in is assets and we still believe that holds true. We are targeting ~$8 for AGL.
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