fitzpatricks mda specific portfolios

TOP 10 POSITIONS

Westpac Banking Corporation

CSL Limited

Transurban Group

Australia and New Zealand Banking Group Limited

Magellan Financial Group Limited

Macquarie Atlas Roads Group

Commonwealth Bank of Australia

Lovisa Holdings Limited

Speedcast International Limited

Challenger Limited

FITZPATRICKS MDA SPECIFIC PORTFOLIOS

Monthly Report, January 2018

www.fitz.com.au 1Monthly Report | Fitzpatricks MDA

Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 January 2018. Performance is net of investment management fees, does not deduct portfolio administration fees and assumes reinvestment of all distributions. Past performance is not a reliable indicator of future performance.

AUSTRALIAN EQUITIES – DIRECT • The Australian equity market started the year lower as most sectors detracted from

performance, in particular Property (-3.3%), while Healthcare (3.2%) and IT (2.0%) bucked the broader market trends.

• Pleasingly, our Portfolio outperformed the benchmark (S&P/ASX 200 Accumulation Index), as exposures remained well diversified across industries and sectors. Given our significant variance from the index benchmark (S&P/ASX 200, being a concentrated fund), individual stock selection as a result of our investment process continues to be a key driver of our returns.

• Our Portfolio positions in international jewellery company Lovisa Holdings (14.1%), medical devices company Resmed (13.5%), diversified retailer Super Retail Group (6.1%) and blood fractionation company CSL Limited (3.6%) all contributed strongly to performance, as did Financial companies Macquarie (3.5%) and Magellan Financial Group (2.2%).

• Companies that detracted from Portfolio performance during the month included our investments in education provider Navitas, who reported a soft profit result. Building products company James Hardie gave back some ground post a strong period of share price performance and infrastructure names including Macquarie Atlas Roads, Transurban and Sydney Airports underperformed due to expectations of rising US interest rates.

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Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

MDA Australian Equities (Direct) Portfolio

S&P/ASX 200 Accumulation Index

FITZPATRICKS MDA SPECIFIC PORTFOLIOS MONTHLY REPORT


Performance Volatility Inception

1 Month 3 Months 6 Months 1 Year 2 Years p.a.

3 Years p.a.

5 Years p.a.

Since Inception

Since Inception Date

MDA Australian Equities (Managed Funds) Portfolio 0.3% 5.5% 12.0% 17.9% 9.0% 9.2% 10.3% 9.2% 10.2% 30/09/10

S&P/ASX 200 Accumulation Index -0.4% 3.0% 7.9% 12.2% 14.7% 7.3% 9.1% 8.5% 11.3% 30/09/10

PERFORMANCE

AUSTRALIAN EQUITIES – DIRECT (cont.)

• The Bennelong ex-20 Australian Equities Fund delivered a positive return of 1.7% for the month reflecting continued strong stock selection and the avoidance of the big banks which fell 1.3% over the month, dragging the ASX 200 lower.

• The Atrium Equity Opportunities Fund outperformed the broader market in January posting a result of 0.1% and pleasingly returns have been well diversified across a range of industries and sectors.


AUSTRALIAN EQUITIES – MANAGED FUNDS

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Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

MDA Australian Equities (Managed Funds) Portfolio

S&P/ASX 200 Accumulation Index

• The SGH ICE Investor Fund rose 0.3% for the month. The key positive contributors to performance included technology services companies Praemium and Bravura, medical device company Resmed and dairy products company A2 Milk.

• Next month is a key month for Australian equities as company profit reporting season moves into full swing in February, which will be an important driver of future share price returns for the Portfolio.

PERFORMANCE



3 Years p.a.

5 Years p.a.

Since Inception


MDA Australian Equities (Direct) Portfolio 0.1% 5.5% 11.0% 16.0% 10.1% 9.0% 11.6% 11.4% 12.4% 30/09/02

S&P/ASX 200 Accumulation Index -0.4% 3.0% 7.9% 12.2% 14.7% 7.3% 9.1% 9.4% 12.7% 30/09/02




INTERNATIONAL EQUITIES


• International equity markets in contrast to Australia began the year strongly, the MSCI World ex Australia (USD terms) returned 5.3%, while only 1.8% in AUD terms due to the strong performance of the Australian dollar (3.5%) over January. The strength of the Australian dollar negatively impacted the returns of our global equity managers.


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Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

MDA International Equities PortfolioMSCI Wor ld ex Australia (Net in AUD)MSCI Wor ld ex Australia (Net Local)



3 Years p.a.

5 Years p.a.

Since Inception


MDA International Equities Portfolio 2.3% 4.0% 12.8% 22.0% 13.0% 12.0% 16.5% 8.5% 9.9% 30/09/02

MSCI World ex Australia, (Net in AUD) 1.8% 3.2% 12.3% 18.2% 13.4% 10.5% 17.8% 6.7% 11.4% 30/09/02

MSCI World ex Australia (Net Local) 3.9% 6.7% 12.1% 21.7% 19.1% 11.3% 13.1% 8.9% 13.0% 30/09/02

PERFORMANCE


• The Antipodes Global Fund - Long Only returned 3.1%, outperforming its index. Key positive contributors included exposure to Bank and Software companies (the two largest sector allocations), while the Communications sector was a small detractor.

• The Magellan Global Equities Mandate returned 1.9%, underperforming its index. The Fund maintains significant allocations to IT and Internet/eCommerce stocks which had mixed performances in January despite performing strongly in recent periods.

• The Northcape Global Emerging Market Fund returned 1.0% in January, underperforming the MSCI Emerging Market Index. The Fund maintains large positions in Consumer Staple and Information Technology stocks in Asia with low to no net debt which tend to lag the broader market but outperform on the downside.



• Our trend following managers contributed strongly to returns for the Alternatives Portfolio in January. Crown Diversified Trend (8.2%), OneRiver (5.5%) and Man Alternative Risk Premia (3.3%) all enjoyed strong investable trends in Global Equity markets, Currencies and Energy prices.

• Alphadyne, our Asian based Macro manager, found success on the right side of interest rate moves both in Asia and the US as the markets priced in the expectation of future hikes over



3 Years p.a.

5 Years p.a.

Since Inception


MDA Alternatives Portfolio 1.1% 3.1% 6.0% 6.7% 0.2% 3.0% 5.0% 5.0% 3.6% 30/09/10

RBA Cash Rate 0.1% 0.4% 0.7% 1.5% 1.6% 1.7% 2.1% 2.8% 0.3% 30/09/10


PERFORMANCE

LIQUID ALTERNATIVES

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Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

MDA Alternatives Portfolios

RBA Cash Rate


the upcoming Federal Reserve meetings.

• Our best performing Equity Market Neutral Manager was the Bennelong Long Short Equity Mandate, assisted by a strong quarterly profit update from Resmed which contributed to long Resmed / short Ansell pair being amongst their strongest pairs. Long JB Hi-Fi / short Super Retail was also a strong contributor based on industry feedback that some retailers had experienced better Christmas sales than expected. The pair has been profitable over twelve months, particularly since Amazon announced it will start a local business.



• The MDA Rates & Credit (Fixed Income) Portfolio added a very pleasing 0.4% in January as the Portfolios’ largest exposures continued to perform strongly.

• The Portfolios’ largest exposure, the Kapstream Absolute Return Income Fund, returned 0.4% as interest income from the Fund’s bond holdings remaining the largest positive contributor. The Fund’s long position in a basket of Asian currencies versus the US Dollar was also positive for returns as the US dollar continued to weaken.



3 Years p.a.

5 Years p.a.

Since Inception


MDA Rates & Credit (Fixed Income) 0.3% 0.7% 1.5% 3.1% 4.7% 4.1% 4.8% 6.0% 4.8% 30/09/02

Bloomberg AusBond Composite Bond Index - All Maturities (TR) -0.3% 0.1% 0.9% 2.7% 2.5% 2.4% 4.1% 5.6% 2.8% 30/09/02

RBA Cash Rate 0.1% 0.4% 0.7% 1.5% 1.6% 1.7% 2.1% 4.0% 0.5% 30/09/02

Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 January 2018. Performance is net of investment management fees, does not deduct portfolio administration fees and assumes reinvestment of all distributions. Past performance is not a reliable indicator of future performance. Since August 2016, the MDA Rates & Credit (Fixed Income) Portfolio has implemented its investment strategy through an allocation to the Atrium Enhanced Fixed Income Fund and cash.

PERFORMANCE

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Sep-02 Jul-03 May-04 Mar-05 Jan-06 Nov-06 Sep-07 Jul-08 May-09 Mar-10 Jan-11 Nov-11 Sep-12 Jul-13 May-14 Mar-15 Jan-16 Nov-16 Sep-17

MDA Rates & Credit (Fixed Income)RBA Cash RateBloomberg AusBond Composite Bond Index - All Maturities (TR)

RATES & CREDIT (FIXED INCOME)

Source: Fitzpatricks, Iress. Performance from 30 September 2002 to 31 January 2018. Performance is net of investment management fees, does not deduct portfolio administration fees and assumes reinvestment of all distributions. Past performance is not a reliable indicator of future performance. Since August 2016, the MDA Rates & Credit (Fixed Income) Portfolio has implemented its investment strategy through an allocation to the Atrium Enhanced Fixed Income Fund and cash.

• Allocations to the JP Morgan Global Strategic Bond Fund (GSBF) was the strongest contributor to performance in January, returning 0.6%. The Fund remains significantly exposed to US dollar Investment Grade and High Yield credit, which assisted the returns in January. Given the recent bout of inflationary pressures in the market, inflation protected securities outperformed the nominal bond market over recent months, adding value to the Portfolio.


MARKET COMMENTARY

Risk appetite remained firm heading into the new year and January saw a further rise in US equities (5.7%). The Australian market in contrast was weaker, the S&P/ASX 200 lower by -0.4%. The Australian dollar rose against the US dollar, climbing 3.1% to US0.81 cents at the end of January, as the US dollar weakened over the month. However, it was the bond markets that drew the most attention during the month as yields rose significantly across the curve. The sharp sell-off in bond markets was driven by a view that synchronised global growth would experience some upward pressure from inflation, and markets remained sensitive to such signs. An overshoot in inflation over the coming year may see a revision to the Federal Reserve’s stance to tighten rates at a steady pace and result in more aggressive actions. We highlighted last month the attention given to the flattening of the yield curve over much of 2017. When the Fed is pushed to tighten aggressively, this has the impact of lessening near term inflation, but also potentially suppressing longer term inflation, growth and potentially the desire to take risk. Yields on 10-year US treasuries rose by 30 basis points (bps) over the month, to close at 2.71%, their highest in almost 4 years. 2-year US treasuries rose reflecting a growing

acceptance by investors that the Fed needs to move in line with its guidance or risk being left behind the curve. Looking at the recent yield changes, the vast majority of the rise in US 10-year yields has been driven by inflation expectations rather than real yields, reflecting increasing inflationary expectations. Australia’s bond market saw a mixed performance across the curve. Long end (10-year) yields rose 18bps in sympathy with the global sell-off, but the short end remained very firm, as the RBA is expected to keep rates on hold over the coming year. Another disappointing CPI release on the last day of January saw yields fall as the market sees less risk of a series of policy moves in Australia.Credit markets were firm again in January, although the momentum (i.e. spread tightening) came to a halt very early in the month. The European Central Bank commenced a reduction of its ongoing quantitative easing debt purchases during the month, although the reduction was disproportionately skewed towards sovereign debt purchases, leaving the credit purchases unchanged. Australian Investment Grade credit was slightly tighter (by 2.7bps) during the month and the US High Yield market was very strong again, returning 1.65% in excess of equivalent maturity government debt. In a period of rising yields, we have highlighted

that this is often a period when High Yield performs well, given the negative correlation between interest rates and credit spreads, as was the case in January.Within the context of market concerns about inflationary risks and an associated unwind of central bank liquidity, US equities held up very well. US Equities had their strongest month since March 2016, and Information Technology was again a very strong contributor with a return of 7.6% for the month (24% weight in the index). In other markets, European equities rose 1.6%, with a standout performance from Italy (7.9%) following the late December dissolution of Parliament. Emerging equities were also broadly stronger, rising 6.8% in local currency terms lead by Brazil (up 11.1%). Australia lagged other markets in January, with underperformance quite stark when assessed over a 12 month basis. The Australian dollar was higher against the US dollar over January mainly impacted by US dollar weakness. This is somewhat puzzling given the sharp reduction in the yield spread of 10-year Australian bonds over 10 year US treasuries which is approaching zero for the first time in over 20 years. This spread support will likely be one factor pushing the Australian dollar lower over coming months.



PORTFOLIO TARGET ALLOCATIONS

Target Weights

AS AT 31 JANUARY 2018

MDA Australian Equities (Direct)

MDA Australian Equities

(Managed Funds)

MDA International

Equities

Liquid Alternatives

Rates & Credit (Fixed Income)

TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%

CASH 2.0% 2.0% 2.0% 2.0% 2.0%

RATES AND CREDIT 0.0% 0.0% 0.0% 0.0% 98.0%

Global Fixed Income 0.0% 0.0% 0.0% 0.0% 98.0%

Atrium Enhanced Fixed Income Fund 0.0% 0.0% 0.0% 0.0% 98.0%

EQUITIES 98.0% 98.0% 98.0% 0.0% 0.0%

Australian Equities 98.0% 98.0% 0.0% 0.0% 0.0%

Atrium Equity Opportunities Fund 0.0% 46.6% 0.0% 0.0% 0.0%

SGH ICE Fund 0.0% 41.7% 0.0% 0.0% 0.0%

Bennelong ex-20 Australian Equities Fund 0.0% 9.8% 0.0% 0.0% 0.0%

International Equities 0.0% 0.0% 98.0% 0.0% 0.0%

Magellan Global Equities Mandate 0.0% 0.0% 44.1% 0.0% 0.0%

Northcape Capital Global Emerging Markets Fund 0.0% 0.0% 1.0% 0.0% 0.0%

Antipodes Global Fund - Long Only 0.0% 0.0% 52.9% 0.0% 0.0%

LIQUID ALTERNATIVES AND PRIVATE MARKETS 0.0% 0.0% 0.0% 98.0% 0.0%

Atrium Alternatives Fund 0.0% 0.0% 0.0% 98.0% 0.0%

Alphadyne Segregated Portfolio * 0.0% 0.0% 0.0% 2.8% 0.0%

Zebedee Segregated Portfolio * 0.0% 0.0% 0.0% 11.8% 0.0%

Latigo Segregated Portfolio * 0.0% 0.0% 0.0% 4.9% 0.0%

Core Diversified Trend Segregated Portfolio * 0.0% 0.0% 0.0% 3.5% 0.0%

Bennelong Long Short Equity Mandate 0.0% 0.0% 0.0% 14.7% 0.0%

Antipodes Global Fund - Long Only 0.0% 0.0% 0.0% 4.9% 0.0%

P/E Global FX Alpha Fund 0.0% 0.0% 0.0% 4.9% 0.0%

GMO Global Systematic Macro Fund 0.0% 0.0% 0.0% 2.9% 0.0%

Regal Tasman Market Neutral Fund 0.0% 0.0% 0.0% 3.9% 0.0%

One River Systematic Trend 0.0% 0.0% 0.0% 10.8% 0.0%

Man Alternative Risk Premia 0.0% 0.0% 0.0% 6.4% 0.0%

Two Trees Global Macro Fund 0.0% 0.0% 0.0% 3.4% 0.0%

Core Commercial Property Assets 0.0% 0.0% 0.0% 1.2% 0.0%

Value Add Property Assets 0.0% 0.0% 0.0% 0.5% 0.0%

Opportunistic Equity Assets 0.0% 0.0% 0.0% 1.9% 0.0%

Private Debt 0.0% 0.0% 0.0% 4.9% 0.0%

Smarter Money Active Cash 0.0% 0.0% 0.0% 3.9% 0.0%

Liquidity 0.0% 0.0% 0.0% 10.6% 0.0%


Source: Atrium and External Investment Manager / Administrator websites or reports. Target weights as at 31 January 2018. Holdings within the Atrium Alternatives Fund are given on a look through basis, individual clients will not hold these funds directly. Investments denoted by * are in managed accounts accessed via the Crown Atrium Segregated Portfolio. The Magellan Global Equities Mandate is a separately managed portfolio managed by Magellan Asset Management Limited in a manner consistent with the Magellan Global Fund. The Bennelong Long Short Equity Mandate is a separately managed portfolio managed by Bennelong Long Short Equity Management Pty Ltd in a manner consistent with the Bennelong Long Short Equity Fund.

Important InformationThe information in this document (Information) is provided by Fitzpatricks Private Wealth Pty Ltd (ABN 33 093 667 595, AFSL 247 429) (Fitzpatricks), and where relevant, its related bodies corporate. Unless otherwise stated, the Information is of a general nature only and does not take into account the objectives, financial situation or needs of any person. Before acting on the Information, investors should consider its appropriateness having regard to their own objectives, financial situation and needs and obtain professional advice. No liability is accepted for any loss or damage as a result of any reliance on the Information. Past performance is not a reliable indicator of future performance. Future performance and return of capital is not guaranteed.

Performance figures relate to the model portfolios offered by Fitzpatricks, with investment management implemented by underlying investment managers selected by Fitzpatricks. The details of each model portfolio may change and you should keep this fluidity in mind when considering figures. Actual performance will differ among clients depending on the timing of their investment, the ability of an investor to nominate stocks they do or do not wish to hold and the level of variation from the models. Figures are post portfolio management fees and expenses and assume reinvestment of distributions. They do not take into account inflation or tax or adviser fees.

For more information please contact your Adviser or Fitzpatricks Private Wealth:

SYDNEYLevel 5, Challis House 4 Martin PlaceSydney NSW 2000 PHONE 02 9248 8000

GPO Box 1193 Sydney NSW 2001

BRISBANE37a Kennigo Street Spring Hill QLD 4000

PHONE 07 3105 6500

EMAIL [email protected]


fitzpatricks mda specific portfolios

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