With the end of the financial year now complete it is time to review the performance of our model portfolio.
The portfolio was started on the 01/01/2012 and includes the shares which we recommend to our clients.
The model is weighting neutral and put simply we look to invest in Blue Chip companies which provide a high dividend yield from cash flow. We also look for companies which has low gearing levels and solid business models.
For the six months ending the 30/06/2012 the model produced a return of 8.4%.
This can be broken down into two parts being income of 3.6% and growth of 4.8%.
Although only six out of the twenty companies failed to provide growth two companies, Cardno and 1300SMILES provided exceptional growth during this period.
The growth in Cardno was due in part to their inclusion in the ASX 200 index, however, the company has been a long term out-performer in the sector. We took some part profits on this company to lock in the gains.
Over the past few weeks we have reviewed our holdings in the model portfolio to make sure that we once again have the good quality companies to provide returns greater than the market. We have now included the CBA Perls III to boost the income and reduce the volatility.
In our Fixed Interest portfolio we continue to hold the same investments, at present it is yielding 7%.
With the cash rate dropping we have seen a big push into the Bond sector pushing prices up and yields down.
Most Australian Bonds are currently paying less then term deposits rates.
We expect to see this push out of cash into fix interest products continue as interest rates are tipped to fall further and conservative income investors look for alternatives.
We continue to see good value in the higher risk floating notes and convertible preference shares.
If you are looking to obtain better returns then cash or term deposits I would recommend that you start looking to invest in these products now. Any future rate cuts will see more cash flow into these types of investments pushing up the price and reducing the risk reward ratio.
Keep in mind that our fixed income portfolio will not produce you any growth and is simply structured to provide the highest possible yield with minimal risk.
To do this we make sure that the underlying company offering the hybrid is of good quality and meet the standard criteria of being Blue Chip, solid business models, low debt and can pay distributions out of their cash flow.
We continue to expect to see a volatile market trading between 4000-4500 for the next 12-18 months as such income is the key to outperformance.
Growth will come with time and as Cardno and 1300Smiles have shown quality companies will always go up in price.
For more information on our Model Portfolio please contact us on 07 4771 4577.