sestante dynamic asser ve por olio monthly investment ......2.52 5.38 5.48 sestante dynamic asser ve...

Performance Review

Por�olio Performance vs Target Return (% AUD)

1 Month 3 Months 6 Months 1 Year Since 1 March 1917.50%

15.00%

12.50%

10.00%

7.50%

5.00%

2.50%

0.00%

2.50%

5.00%

7.50% 5.73

15.01

9.65

4.08

0.51

0.381.20

2.52

5.38 5.48

Sestante Dynamic Asser�ve RBA Cash Rate +4.5%p.a.

Re

turn

Sestante Dynamic Asser�ve Por�olioMonthly Investment ReportAs at 30 April 2020

Dynamic

of 5

Asset Class

Diversified

Growth/Defensive Split

85%/15%

Investment Objec�ve

Target RBA Cash Rate +4.5%

p.a. over rolling 5 year

periods a�er fees

Por�olio Incep�on Date

7 February 2019

Management Costs¹

0.58%

Number of Holdings

1040

Por�olio availability

Hub 24

Contents

1: Performance Review

2. Market Review

3. Market Outlook

4: Por�olio Overview

5: About Us

1 Es�mated current total fee before

transac�on costs and pla�orm fees

but a�er AZ Sestante manager

discounts. As at 31 March 2020

Market Review

Australian Equi�esA�er suffering its worst crash since World War 2 in March, the Australian stock market rebounded strongly in April, recording its best

month in modern history. The S&P/ASX 300 TR was up +9.02%, primarily on the back of the recovery in cyclical sectors and in AREITs;

further gains for the general index were prevented by the performance of banks, as the group ended April only slightly posi�ve a�er

the “Big Four” set aside more provisions for baddebt, slashed or suspended dividends and in some cases launched capital increases.

Energy was the best performing sector despite the historic plunge of the WTI (“West Texas Intermediate”) crude oil price below zero on

April 20, as traders dumped the May future contract that was expiring on April 21 even at a cost in order to avoid taking physical

delivery. The unprecedented collapse in nega�ve territory was mostly technical and quickly reabsorbed. In the end, oil was down

8.01% for the month, closing below the important threshold of 20 USD per barrel, that is, below replacement cost, for the first �me

since January 2002. (con�nued...)

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The Sestante Dynamic Asser�ve por�olio significantly outperformed during April, returning +5.73% for the month.

All growth assets drove returns during the month, in par�cular Australian equi�es.

The severity of the downturn in February/March accounts for challenging 3 and 6 month returns.

Powered by bestinclass investment managers.Designed by

Past performance is not an indica�on of future performance. Net performance figures are calculated using exit prices, net of fees and reflect the annual reinvestment of

distribu�on. Retail investors should refer to net returns. If inves�ng through an IDPS Provider, the total a�er fees performance return of your investment in the Fund may be

different from the informa�on in this report.

Source: Morningstar Direct

Market Review con�nued

Returns for energy stocks were almost triple that of the broader index in

spite of the extraordinary losses in the value of the commodity.

Technology, consumer discre�onary and materials posted double digit

gains, while the par�cipa�on of defensives in the rally was muted, with

telecom and healthcare capturing 50% of the upside, u�li�es 35% and

consumer staples 25%. Finally, mid and smaller companies strongly

outperformed the Top 20 for the first �me in 2020.

Interna�onal Equi�esA�er outperforming the domes�c market on the way down, the MSCI AC

World Daily TR confirmed its posi�ve momentum on the way up, rising

+10.71% in USD terms. However, contrary to what happened in the

previous month, its returns were greatly reduced when translated in AUD

terms, stopping at just +3.59%. The Australian Dollar con�nued its

recovery from its momentous plunge below 60 cents visàvis the US

Dollar which occurred in the second half of March, adding another

+6.92% and ending the month above 65 cents. Sector trends were

broadly in line with those observed in the domes�c market. Cyclicals,

with the excep�on of financials, caught a bid a�er the crash while

defensives lagged; however, within the la�er group, healthcare and

telecom managed to outperform the general index on the back of the

large advances recorded by the American mega cap growth names

belonging to those sectors. The US market trounced all major

interna�onal rivals due to its greater skew towards technology,

communica�on services, healthcare and consumer discre�onary, which

makes up 64% of the S&P 500; emerging markets came a distant second,

with just a third of the return, while Europe and Japan were down in AUD

terms.

Property and InfrastructureProperty and infrastructure (+6.14% and +7.92% respec�vely in AUD

terms) rallied sharply in the second week of April, but then they began to

fade as investors grew worried about the impact that the coronavirus

may have on unlisted real assets; as large ins�tu�ons have loaded up on

the la�er in recent years, they may be forced to look for liquidity in the

listed space.

Domes�c and Global Fixed IncomeDomes�c fixed income (0.07%) was unchanged for the month as the

chaos unleashed by the announcement of QE by the RBA subsided. The

yield curve steepened as the 2 year moved 3 Bps lower, at 0.22%, and the

5 and 10 year moved 8 Bps and 13 Bps higher, to 0.42% and 0.89%

respec�vely. Global fixed income hedged back to AUD (+1.50%) stole all

the a�en�on on April 9 when the FED announced that it would buy junk

bonds, causing government bond yields to fall and credit spreads to

�ghten. The stunning move caused the en�re US yield curve to shi�

below the Australian yield curve for the first �me since December 2017.

At the end of April the spread between the US and the Australian 10 year

dropped to 25 Bps a�er averaging around 60 Bps in the previous 12

months.

Alterna�vesFinally, Alterna�ves (+2.76%) recouped a third of the losses suffered in

Q1 as returns were mostly posi�ve across strategies, with equity long

bias, event driven and long/short equi�es claiming the top three spots.

Market Returns


of 5

Major Index Returns

1 Month 3 Months 6 Months 1 Year 3 Years

S&P/ASX 200 TR AUD

MSCI World Ex Australia GR AUD

Bloomberg AusBond Composite 0+Y TR AUD

BBgBarc Global Aggregate TR Hdg AUD

S&P Global Infrastructure NR AUD

FTSE EPRA Nareit Global REITs TR AUD

RBA Cash Rate Target

8.78 20.32 15.48 9.06 1.92

2.28 22.14 15.89 9.21 2.67

0.07 0.57 2.06 6.42 5.46

3.67 9.48 1.81 4.10 10.59

0.56 23.80 22.04 12.04 2.43

0.02 0.10 0.29 0.83 1.28

1.50 0.97 2.30 7.20 4.62


Market Outlook

Background

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The US government will borrow a record 3 Tril USD in Q2 2020 alone, on top of

the 477 Bil USD borrowed in Q1 and of the 677 Bil USD projected for Q3.

As a result, the US na�onal debt has grown by 1.5 Tril USD to 24.9 Tril USD since

March 1, a 6.4% increase.

As a reference, in 2009, at the depth of the GFC, the Obama administra�on

increased the budget deficit by 1.4 Tril USD, an amount more than triple the

preceding largest shor�all on record.

2020 is on track to pulverize that high by a similar order of magnitude. Es�mates

vary, but it is expected that the FED will mone�ze via direct purchases (QE) or by

indirectly providing liquidity to banks to finance their purchases of Treasuries

(repo) around 2 Tril USD of the newly issued government paper.

In essence, the US government has reached the point where its financing needs

are so large that there are no longer natural buyers for all of its debt, except for

the FED.

Hence, suppor�ng government spending has become defacto the unofficial

mandate of the central bank. That may explain why at the �me of the wri�ng of

this note (May 12) the FED does not appear to have bought any corporate bonds

yet.

Sure, it had to set up two SPVs for this purpose in order to bypass the restric�ons

imposed by the legislator, and ques�ons about the legality of these ac�ons

remain; however, a simpler explana�on would be that absorbing Treasuries has

been a full�me job in the past 90 days, leaving no capacity for other buying.

If so, the level of support that investors assigns to credit markets, high yield in

par�cular, may be overes�mated, and given that we may be just at the start of a

new bankruptcy cycle, corporate bonds may not be the right place to park money

while global economies deal with the a�ermath of the coronavirus.

Government bonds may not be either, but for the opposite reason. In fact, a

success on the part of the FED in reigni�ng the global credit cycle à la 2009 will

lead to higher long bond yields.

In short, fixed income presents a dilemma: credit offers the carry, but liquidity

� remains scarce and the asset class may suffer if the FED does not do enough;

conversely, government bonds offer almost no carry and may suffer if the FED

does enough.

Impact

These considera�ons lead us to posit that US large cap equi�es have become the new

“safe haven” of choice for worldwide investors.

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First of all, over �me the S&P 500 has become less and less representa�ve of the

US real economy, which, as we know, has just seen its biggest quarterly

contrac�on (4.8%) since Q4 2008. In fact, 5 “Big Tech” names (Microso�,

Amazon, Apple, Google and Facebook) account now for more than 21% of the

index.

Second, we think that US equi�es will be a winner whether the FED is successful

or not in its refla�on a�empt.

In the first case, the amount of s�mulus administered by the US central bank is

sufficient to sustain domes�c and global economic ac�vity, driving the US Dollar lower

and the Rest of the World to outperform US. In this scenario, US equi�es may not be the

best performing asset class in rela�ve terms, but they are definitely going to generate

posi�ve returns. However, the second case is more interes�ng, on top of being the most

likely in our opinion. In fact, because the FED can only inject money into the domes�c

economy, being not successful in its objec�ve means that those dollars remain trapped

in US and do not flow to the Rest of the World; hence, growth condi�ons in US remains

compara�vely be�er, causing US equi�es at least to outperform their global peers, but

poten�ally to eke out some gains in an ocean of red. That’s precisely what has

transpired since the beginning of the crisis: at the end of April, the US technology sector

as exemplified by the Nasdaq 100 was up +3.37% since the beginning of the year, while

the MSCI AC World Daily TR was down 12.94% (all numbers in USD). It is not by chance

that the market capitaliza�on of the Nasdaq Composite is now larger than that of the

MSCI World Ex. US.

The extraordinary response of the US government and the FED to the coronavirus crisis

has not caused the decoupling of the financial economy from the real economy; it has

caused the decoupling of the US stock market from all other asset classes....


of 5

Ac�ve Management: Tac�cal Asset Alloca�on vs Investment Policy


Sestante Dynamic Asser�ve Por�olioMonthly Investment ReportAs at 30 April 2020 of 5

Por�olio Overview

Por�olio Holdings %

Portfolio Date: 30/04/2020

Vanguard AllWorld exUS Shares ETF

iShares Australian Equity Index

iShares S&P 500 ETF

Capital Group New World (AU)

MapleBrown Abbo� Global Listed Infras

Bennelong ex20 Australian Equi�es

Realindex Aus Small CoClass A

Vanguard Interna�onal Property Secs Idx

Paradice Large Cap Fund

Schroder Australian Equity Fund PC

Vanguard Emerging Markets Shares Index

iShares Australian Bond Index

iShares Core Cash ETF

18.29

13.14

10.38

10.18

9.03

7.90

6.70

5.68

5.64

5.63

2.72

2.61

2.09

Sestante Dynamic Asser�ve Por�olio Holdings

Por�olio Date: 30/04/2020

%

Interna�onal Equi�es 41.6

Australian Equi�es 33.4

Global Infratstructure 9.0

Global Property 5.7

Unclassified 5.6

Australian Fixed Income 2.6

Other 2.1

Total 100.0

Fixed Income Credit Quality


%

AAA 74.4

AA 18.5

A 4.2

BBB 2.9

BB 0.0

B 0.0

Below B 0.0

Not Rated 0.0

Total 100.0

Equity Market Capitalisa�on


%

Giant 29.8

Large 34.9

Mid 23.6

Small 9.0

Micro 2.6

Total 100.0

Ac�ve Asset Alloca�on: Asser�ve Model Por�olio* Tac�cal Asset Alloca�on vs Investment Policy Target

Whilst overall investment policy anchors the Investment Commi�ee’s decision making, the investment process allows addi�onal flexibility to implement wide ranging tac�cal asset class �lts. The

Investment Commi�ee applies generally conserva�ve and prudent asset class �lts when it considers them appropriate. *AZ Sestante Model Por�olio.

Equity and Fixed Income Asset Alloca�on


Sestante Dynamic Asser�ve Por�olioMonthly Investment ReportAs at 30 April 2020 of 5

Flagship Por�olio Ac�ve Asset Alloca�on Overview

Important informa�on

This document has been prepared by AZ Sestante Limited ABN 94 106 888 662 AFSL 284 442 (‘AZ Sestante’). This presenta�on has been prepared for use by dealer group researchers and research

houses only and is not for wider distribu�on. This document is not an offer of securi�es or financial products, nor is it financial product advice. As this document has been prepared without taking

account of any investors’ par�cular objec�ves, financial situa�on or needs, you should consider its appropriateness having regard to your objec�ves, financial situa�on and needs before taking any

ac�on. Past performance is not a reliable indicator of future results. Although specific informa�on has been prepared from sources believed to be reliable, we offer no guarantees as to its accuracy or

completeness. The informa�on stated, opinions expressed and es�mates given cons�tute best judgement at the �me of publica�on and are subject to change without no�ce. Consequently, although

this document is provided in good faith, it is not intended to create any legal liability on the part of any other en�ty and does not vary the terms of a relevant disclosure statement. All dollars are

Australian dollars unless otherwise specified.

Established in 2016, we specialise in designing and administering a focused range of mul�manager investment solu�ons and managed accounts for our clients. Our parent company

Azimut, Italy’s largest independent asset manager, was established in 1989 and listed on the Italian stock exchange in 2004. Azimut manages in excess of AUD55bn in assets globally

including over AUD$6bn in mul�manager solu�ons.

Andrew Davies

M + 61 418 617 418

[email protected]

Michael Negline

M + 61 410 586 078

[email protected]

About AZ Sestante


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