CHRIS BURRELL ’ S BLOG
June 2021 Portfolio Recovery Complete
The June 2021 Financial Year saw stellar portfolio returns . The index returns were 24 % for 100 % Australian shares portfolio for the 12 months to 30 June 2021 , 27.8 % with dividends .
More importantly , all of the COVID losses in March 2020 have been recovered on average . So for the two year period from 1 July 2019 to 30 June 2021 the Australian Stock Market is up 5 %, 8.6 % with dividends .
Dividends were cut severely by many companies as a result of COVID such that the post COVID dividends are materially less than in previous years . A key feature is that dividends are being restored and this has supported the increase in capital value of listed shares , particularly in the banks and major industrials . Indeed , it seems that assuming no further calamity , dividends for the 2022 financial year will be restored to 80 % or better of the COVID impacted year .
For balanced and moderate growth portfolios which have fixed interest and property ratings , the returns will be reduced given historically low interest rates , particularly for the 1 and 3 year maturities including term deposits . However , the Burrell Fixed Interest desk has added positive returns to these low rates over the past two years so adding alpha to many portfolios .
The property space continues to be a mixed bag with industrial property performing strongly , while office and retail property trusts remain impacted by COVID . It is likely the office market was sold down to extreme levels , which have seen recovery . The recovery in property values in the office sector is being underpinned by the low interest rate environment with external sales of industrial and office property at low capitalization rates i . e . high market prices notwithstanding the ongoing COVID impacts . In effect , the market has discounted COVID as a health event which will be overcome .
There are a number of themes , which are continuing to play out . a ) Stronger Commodities Cycle
Glencore made a statement that the commodities Bull market is here to stay . “ Commodities prices will stay strong for a long while longer ”.
A key driver for the strong commodities is the saving of various COVID government income support measures including Jobkeeper and Homemaker in Australia and comparable programs overseas . That cash is supporting the ordering of goods online and as COVID restrictions ease around the globe , the purchase of goods physically including cars , hardware etc . Many of those goods have traditionally come from China . The strong V-shaped recoveries in many economies have resulted in strong goods orders , which in turn are creating demand for commodities such as steel , copper , etc .
Environmental factors are also creating a demand for different commodities e . g . the electric vehicle ( EV ) phenomenon is creating demand for battery minerals including copper , lithium , nickel , cobalt . To the extent the leading car battery solution is lithium / nickel / cobalt batteries , this demand is likely to be on going through this decade . There are alternate technologies including hydrogen , which Japan has selected as a likely winner with requests to Australia that we develop expertise and capability in hydrogen-powered vehicles i . e . splitting water into hydrogen and oxygen , with the hydrogen most likely transported in the form of ammonia .
The environmental factors are also resulting in increased demand for LNG . So China for example has been building coal and nuclear power plants , as well as some investment in solar . LNG has half the carbon footprint of coal , so China , South Korea and Japan have shown increased appetite for LNG shipments . In the case of China , it is likely they are seeking to keep their total energy costs below those of other nations who adopt solar and wind with large implicit subsidies . The Chinese are intent on not seeing a 20-30 year sunset on their manufacturing industries , as Chinese labor costs are increasing and they want to avoid the migration which occurred from China to Japan . Australian oil companies are in the main LNG and conventional gas producers as there is little oil in Australia , given the weathering and age of rock formations generally .
b ) Industries recover at different rates
The recovery of different industries and sectors post COVID has been somewhat bumpy and uneven . A number of defensive sectors were beneficiaries of COVID e . g . packaging , share registries and pharmaceuticals .
In the last 6 months , we have seen a strong recovery by Australian banks which initially lagged due to concerns around bad and doubtful debts as a result of business failures . The introduction of programs such as Jobkeeper and other income
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