Our take on recent market volatility

October 2018 has seen the ASX 200 fall sharply declining by -5%, with over half of that fall occurring yesterday Thursday 11th October.  The biggest factor causing this fall has been a major sell off in US stocks overnight particularly in the US tech companies such as Facebook, driven by the prospects of US interest rate rises and fears over a trade war with China.

Globally Australia and by extension the ASX is seen as a riskier economy, so when investors in New York, Tokyo and London are feeling scared they will sell or short-sell Australian assets due to the perception that they will fall further than their home markets.  In light of these declines and hysterical headlines, we thought that it might be useful to see how we approach market falls such, as the one that we have seen so far in October.

Calmly look at what you have in your portfolio

The worst thing that investors can do is listen to the breathless market commentary in the financial press which is designed to sell newspapers.

When a major market correction occurs, what we do is step back and think what this particular change will do to the earnings and dividends from the companies held in our portfolio.  If the answer is not much and the dividend stream will be largely unaffected, then the falling market has given you the opportunity to add to positions at a discounted price. Conversely companies that we don’t own such as Afterpay Touch (down -23% in October) and WiseTech (down -26% in October) may see their earnings impacted by the October market correction.

Follow the Dividends

When thinking about the noise and price movements that we face as investors, a great quote from Ben Graham one of the titans of investing comes to mind “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” Short-term prices are dominated by human emotion and short-term holders, but in the long-term, share price growth is delivered by those companies that can constantly grow dividends flowing into their shareholders bank accounts.

As the Maxim Atlas Portfolio is one constructed for long-term investors interested in consistent and high income, after the recent half year reporting season we “weighed” the dividends that our investors received in September and October. On average, the dividends that our investors received were +11% greater than for the previous period in 2017 and every stock paid a dividend. Furthermore, the outlook for 2019 is a further increase, due to both higher earnings and a falling Australian dollar (which raises the AUD value of the profits that our companies make outside Australia). Whilst October’s fall has generated some headlines in the press, looking through the Maxim Atlas Portfolio we have few concerns about the moves in the US impacting our ability to deliver growing dividends.

How we are positioned

The Maxim Atlas portfolio is currently yielding a grossed-up dividend of 5.9% (or 7.4% including franking credits). During times of market volatility, we prefer to own companies with solid dividends and proven business models, as dividends provide a backstop and give investors a stream of income even whilst the market may be marking down a company’s share price. In the medium term, if a company is growing its dividends, its share price will naturally recover. 

Looking through the Maxim Atlas portfolio today, it was hard to see how the falls in the US market this week was going to impact trips on Transurban and Atlas Arteria’s toll roads, patients buying CSL’s immune therapy drugs, homeowners paying their monthly mortgage payment to Westpac, doctors requesting Sonic Healthcare to conduct pathology tests for their patients or Amcor’s sales of soft drink bottles and food packaging.  Indeed, in this day of gloom which saw every company on the ASX falling, one of the companies we own Amcor was up 2% after they upgraded their earnings at their AGM!

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Written by Matt Haggarty of Maxim Private Clients

Disclaimer: This material has been prepared without considering any potential investo or clients objectives, financial situation or needs. This article is of a general nature and does not consider the individual circumstances of its recipients. Any informatin contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concerns

Maxim Private Clients is a Corporate Authorised Representative No 1241929 of Futuro Financial Services Pty Ltd ABN 30 065 870 015 ASFL No 238478

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