Marcus Today SMA | January 2021 Update

SMA PERFORMANCE MARCUS TODAY GROWTH SMA (MT0001)

Source: Praemium

The Marcus Today Growth SMA fell 1.71% in January, falling short of the 0.56% rise in the benchmark S&P/ASX 300 Accumulation index. The Growth SMA has risen 6.41% over the past 12 months – outperforming the 2.69% fall in the benchmark index by 9.10% for the period. Among our best performers for the month were:

• Bingo Industries (BIN) up about 30% after confirming it had received an unsolicited, takeover offer from CPE Capital.
• Zip Co (Z1P) up 37.4% after the affirm IPO lit a flame under the BNPL stocks by showing the size of the addressable market. The company also “cemented itself as a true global BNPL leader” (their words) with its 2Q21 update. Z1P is up 85% since the end of January to be $13.50 at time of writing.
• Sonic Healthcare (SHL) started to turn on the charts after a disappointing couple of months, finishing January up 6.9%.

Remaining essentially fully invested through the month, it was a number of stock specific moves that led to our relative underperformance. These included:

• The resources sector coming off the top a little – down 0.61% for the month and one of our largest sector holdings with 16.7% of the portfolio allocated to BHP Group (BHP), Rio Tinto (RIO) and Fortescue Metals (FMG).
• A 4% rally in the banking sector, which we continue to exclude from the portfolio outside of Macquarie Group (MQG), which lagged behind the rest of the sector.
• Our re-entry into the “travel recovery trade” on the back of a hot-spot inspired sell-off may have been a little premature and got off to a poor start, with each of Flight Centre (FLT), Qantas (QAN), Webjet (WEB) and Corporate Travel (CTD) ending the month below our entry point.
• Similarly, our move to take Oil Search (OSH), Santos (STO), Worley (WOR) and Woodside Petroleum (WPL) further overweight backfired as the oilers came under pressure. Our portfolio currently holds an 11.4% exposure to oil stocks.
• CSL (CSL) continuing to disappoint as one of our largest holdings. Down another 4% for the month.
• Altium (ALU) disappointed with their half year unaudited sales and revenue, falling 9.6% for the month.

On top of the changes mentioned above, we also made the following moves in January:

• Initiated a 3% position in Netwealth (NWL) after their recent price set-back. The rotation from major Industry and super funds into other platforms, including separately managed accounts, continues as evidenced from the FUM statements from PPS, HUB and NWL recently. NWL is the largest of the three majors and the perceived 'quality' stock in the group ($4.3bn market cap, ROE 62%, 20% eps growth, strong balance sheet). HUB has a $1.8bn market cap, PPS a $411m market cap.
• Exited our A2 Milk (A2M) position after a prolonged period of underperformance and fading signs of a recovery.
• Topped up Macquarie Group (MQG)in the absence of holding the major banks.
• Topped up BHP Group (BHP), Rio Tinto (RIO) and Fortescue Metals (FMG) ahead of what we expect to be record results and dividend declarations.

A disappointing month overall but we feel we are positioned well with a good balance of quality growth stocks and recovery names that will continue to perform as the vaccine rollout continues and the virus steadily comes under control.

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MARCUS TODAY EQUITY INCOME SMA (MT0002)

Source: Praemium

The Marcus Today Equity Income SMA fell 1.28% January, short  of the benchmark ASX 200 Industrials TR index which rose 0.56% for the month. The Equity Income SMA has a 12-month gross yield of 4.23%, which sits above the market average yield of around 3.5% and is set to rise with the expected record dividends from the iron ore miners, all of which we maintain overweight holdings in. Among our best performers for the month were: Wesfarmers (WES) up 8.4% as the increased discretionary household spending continued to roll in. The banking sector up 4% as longer dated treasuries started to creep up. Through the month we increased our exposure to each of Australian & New Zealand Banking Group (ANZ), National Australia Bank (NAB) and Westpac (WBC) by 0.5% and initiated a 6% holding in Commonwealth Bank (CBA). On the other side of the ledger, some of the disappointing performers for the month were: CSL (CSL) down 4%. The REIT sector. Not too many drastic moves but a trickle down over the month which leaves a few of our REIT holdings on notice. Service Stream (SSM) did not rebound as we had hoped after what we saw was an overreaction on the downside to the December contract announcement. The position is currently under review. Alongside the increased banking exposure, we also upped our iron ore holdings through January ahead of results and more importantly the bumper dividends that we expect to follow them.

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MONTHLY MARKET COMMENTARY It was a positive start to the year for our local market. The ASX 200 rose 0.31% for the month of January with the usual lower volumes that come with the holiday trading period. The rise followed a 1.06% increase in December, that saw the index, despite the pandemic, almost close the 2020 calendar year in the black, with a loss of just 1.15%.

Source: Refinitiv Eikon

The markets have continued to rally in February although we saw the US markets drop and recover at one point on the back of  “Short Squeeze” in some of the most shorted, mostly smaller stocks in the US. Social media driven groups of retail investors managed to propel some of the most shorted US stocks and create problems for some shorting institutions leading to short sellers selling to cover.  The saga took hold of the financial newswires and produced enough uncertainty to briefly make it look like it might be the catalyst for the end of the recent, vaccine inspired, bull market. The issue below over as quickly as it arose and as we write the market is once again hitting new highs in the US. The Nasdaq closed out the month up 1.42% whilst the Dow Jones and S&P 500 fell 2.04% and 1.11% apiece. We have now seen a 75% rally in the S&P 500 from the low in March 2020. The major trend is still up. Themes in the US market have become quite repetitive. They include:

• A new political stability and co-operation with the Democrats in the White House.
• Hopes for an eventual Fiscal Stimulus Bill in the US under the new White House Administration.
• A supportive monetary policy back drop with all central banks promising to do whatever is necessary to drive a post pandemic economic recovery.
• After a slow start we are seeing an acceleration in the Northern Hemisphere vaccine roll-out. 10% of Americans have now had their first shot and vaccinations have accelerated from 200K a day to 1.4m.
• An improvement in COVID case trends in the US and Europe.
• A peaking in COVID hospitalisations in the US and Europe.
• Positive earnings momentum from the US results season - 81% of the 63% of companies that have reported have beaten expectations.

This is the chart of the ASX 200 as we write. The trend is unequivocally “up”. Here is a chart of the ASX 200 showing the recovery in the last year but making the point that it is still 7.75% below the February high. ASX 200 Here is the same chart for the S&P 500. The S&P 500 is up 66% from the low last year and is now 9.7% higher than it was in February, pre-pandemic. A large part of that recovery and the further gains have been driven by the Big Tech stocks that account for 18.1% of the S&P 500. The NASDAQ has performed materially better than the general market. S&P 500

Source: Refinitiv Eikon

NASDAQ

Source: Refinitiv Eikon

The NASDAQ is up 91% from last year’s low and is now, amazingly considering the backdrop of a pandemic induced recession, up 33.4% from the pre-pandemic record high last February. It only goes to highlight how fabulous the pandemic has been for some companies (pandemic beneficiaries), how polarised its impact, and how the earnings of some companies are not cyclical and are not linked (in the short term) to the traditional measure of GDP. As an aside, and to highlight the importance of the Big Tech stocks, if you take the FAANMGs out of the S&P 500 the S&P 500 is up 3.7% from the February high last year, not 9.7%. Without Big Tech the S&P 500 has still outperformed our market by about 10%. Here are the charts of the S&P 500 and NASDAQ over the last year. Our high Banks weighting and low technology weighting have see Australia underperform. THE VIRUS Case numbers are now falling globally as the vaccine rollout accelerates. Locally the Pfizer vaccine is set to be delivered mid-February, while more Americans have now received at least one vaccine shot than have tested positive to the virus. There are now 1.4m doses being administered daily and both case numbers and Covid related deaths have begun to decline in every section of the US.

Source: Financial Times

Other events in January

• The banks pushed 4.06% higher as longer-dated treasuries rose. Rising rates are good for their margins.

• The All-Tech Index continued on its merry way, finishing the month up 5.78% with the BNPL stocks (Afterpay, Zip Money) once again leading the way.

Source: Refinitiv Eikon

• The resources sector topped out just a little as the iron ore price hit some resistance through the month (still closed 7.9% higher).

Source: Refinitiv Eikon

• Buyers returned to the energy sector as the oil price hit its highest level in 12-months.

Source: Refinitiv Eikon

• The Aussie dollar topped out on the January RBA Statement, after a stellar run to finish 2020.

Source: Refinitiv Eikon

• The RBA said it expects the economy to recover to pre-pandemic levels by mid-2021.

Source: Refinitiv Eikon

• US 10 year yields (market interest rates) are slowly creeping higher.

Source: Refinitiv Eikon

• The VIX Volatility (Fear) index saw a sharp pop and drop thanks to the “Reddit short-squeeze”. Still above comfortable bull market levels in the US, but settling a little lower locally.

Source: Refinitiv Eikon

• Gold still out of favour. Down 2.66% for the month.

Source: Refinitiv Eikon

• Silver seeing a bit of a rally as the “Redditors” attempt another short-squeeze.

Source: Refinitiv Eikon

• Bitcoin at all-time highs.

Source: Coindesk

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