What is the latest portfolio update?
Please find the latest portfolio update (October 2018) below.
As valuations have improved, we’ve increased the weighting of this asset class in all three portfolios: Growth, Balanced and Cautious. We’ve done this primarily by increasing the allocation to the Morningstar Australian Shares Fund, which invests with quality in mind.
For Balanced and Growth, we’ve also made some changes to the individual stock positions. Trimming QBE is a good-news story: it’s struggled against strong headwinds, but is now back in favour with investors, resulting in strong gains. As such, it’s time to lock in some profits.
Similarly, for Growth and Balanced portfolio holders, we’ve also topped up your investment in Commonwealth Bank. CBA continues to feel the heat from the fallout of the Royal Commission, so recent weakness in the share price gives us greater confidence to invest further.
And for Growth portfolio holders, we’ve made a couple of additional moves. Coca-Cola Amatil has performed similarly to QBE (which bodes well), so we’ve responded in tandem by decreasing the allocation. We’ve also added Australia’s largest gold producer, Newcrest. We’re confident that the company’s investments at their Lihir mine (in Papua New Guinea) and Cadia Valley project (in central NSW) will drive future earnings.
Similarly, as global share valuation improves in both developed and emerging markets, we’ve increased the allocation of the Morningstar International Shares Fund and the Vanguard Emerging Markets Shares ETF. This change applies to all three portfolios.
The Morningstar International Shares Fund seeks to buy high-quality companies (low levels of debt, strong cash flows, etc.), including names like Microsoft and Cisco. About half of this fund is invested in U.S. shares, which have pulled back lately. We also have a significant allocation in Japanese shares, a key region we consider ripe with opportunities.
Additionally, it’s our view that Trump’s trade actions have seen investors overreact in emerging markets. This has created the valuation opportunity.
In previous quarters, we built up the cash level in each portfolio as the risk of loss kept rising. We’ve now used these higher cash levels to fund recent purchases, but the portfolios still hold ample levels of cash to take advantage of more compelling investment opportunities. These investment opportunities may assist in buffering the portfolios to prevent losses, should the volatility continue.
This document is issued by Morningstar Investment Management Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (‘MIM’), Level 3, International Tower 1, 100 Barangaroo Avenue, Barangaroo NSW 2000, Australia. MIM is the Model Portfolio manager of Morningstar Next, a Separately Managed Account referred to in this email. Praemium Australia Limited (ABN 92 117 611 784, AFS Licence No 297956) (‘Praemium’) is the responsible entity and issuer of Morningstar Next.
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