A solid and relatively uneventful quarter means the story is not unlike last time. Maybe a couple of points worth making:
Rising stock markets are welcome – better than the alternative anyway – but it can’t go on forever.
A common measure used to tell whether stock markets are good value or not is the Price/Earnings (P/E) ratio – a measure of how much the market expects to be paid per unit of companies’ earnings. A high P/E suggests the Prices are relatively expensive and more likely to fall, or at least be subdued while Earnings catch up to Price.
Currently the US market’s P/E sits at a tad over 27 and the Aussie market is nudging 20 – compared with long term averages in the mid-high teens. Getting uncomfortable.
Recent market darling Nvidia, seen as the gateway to Artificial Intelligence riches, has a P/E up around 80, while other big tech stocks like Amazon and Netflix are still north of 60 and 50 respectively. Those prices assume not much other than blue skies and tailwinds.
Which doesn’t mean things can’t keep going up, but the odds aren’t weighted in that direction. Nor does it imply that everything on the market is expensive. Diligent managers might still find some less conspicuous gems that are priced realistically.
But it’s a good time to be particularly conscious of not paying too much to buy or hold listed shares.
As mentioned last time, our holdings in private companies are not so susceptible, being subject to formal periodic valuation protocols rather than daily market whims.
The benefit of locking away funds in term deposits appears to have evaporated for the moment, with longer term rates easing and shorter term rates rising. Someone’s trying to tell us something.
So for the moment we’re no longer rolling over maturing TDs, and are instead using the First Sentier Cash Fund which you’ll see making its debut in the table below. It’s paying a similar rate to 5-year TDs but with the money readily available at call to deploy when the going’s good.
The West Wing
What else is happening? Well, there’s a US Presidential election later this year, so I guess just about anything could happen! It’s often the case though that, apart from some kerfuffle either side of the actual poll, markets tend to function in spite of elections rather than because of them. Once the uncertainty has gone and the market knows what it has to deal with, it’s business as usual.
But it might be fun, (if not instructive) to look at how the US market has performed during the tenure of the last six POTUSs (POTI?). This chart shows the cumulative rise, or otherwise, in the US stock market on the vertical axis, throughout the tenure of each president (measured in months) on the horizontal.
Of note:
- Biden and Trump’s impact has been almost identical at the same point in their respective presidencies
- Interestingly, the Democrats (in blue) look to have been better accepted by markets than the Republicans, with also a greater likelihood of getting a second term
- The standout performer, at least from the market’s viewpoint (if not the White House staff’s) is clearly Bill Clinton.
So, who’s got what?
The table below shows the ARAIF’s investments at the time of writing. Please note, the percentages refer to the proportion of each portfolio allocated to that investment, not its rate of return.
Major Holdings – diversified portfolios
Apart from bank deposits and other interest-bearing accounts, Defensive, Growth and Equities portfolios invest in a range of assets through the fund managers listed in the table above. If we drill through to the assets selected and overseen by those managers, there are in fact over a hundred individual securities providing diversification of risk and exposure to a wide range of opportunities.
The table below shows the 20 largest individual holdings and what proportion of each portfolio they represent. These are the investments that will have the biggest impact on the portfolios’ returns.
Returns quoted in this report are after all costs, and before the application of management fee rebates. Return figures are pre-tax, and include the value of franking credits from franked dividends. Total return figures assume the re-investment of gross distributions including franking credits. 3-month return figures are for the period to 31 March 2024 and are not annualized.
ARA Consultants Limited provides this update for the information of its clients and associates. If you do not wish to receive this or other information about ARA in future, please contact us on (03) 9853 1688.
This document has been issued by ARA Consultants Limited for its own use and the use of its clients. Fundhost Limited (ABN 69 092 517 087) (AFSL No: 233 045) (Fundhost) is the issuer of the ARA Investment Fund (ARSN:104 232 448). Information contained in this document is general information and is not intended to constitute nor does it purport to offer any specific or individual investment advice. Whilst every effort has been made to ensure the accuracy of the information contained in this document, neither ARA nor Fundhost accept any liability in relation to anyone who makes and acts upon a decision based upon that information. No person should make a decision based upon the information contained in this document without first seeking and obtaining the appropriate professional advice relevant to their own individual circumstances and financial needs. You should consider the Product Disclosure Statement in deciding whether to acquire, or continue to hold the product. The PDS and applicable Target Market Determinations are available at www.araconsultants.com.au or by contacting ARA by phone on (03) 9853 1688 or by email at info@araconsultants.com.au. We also caution that past returns are just that, and the fact that they have been achieved previously does not guarantee or imply that they will be achieved again.
If you would like a pdf version of this update for your files you can download it here: March 2024 Quarter Investment Update.
