This 2023-24 half-year results season yielded strong results overall for the Djerriwarrh portfolio, with more positive trends than those of recent periods, despite the mixed economic and market messages, according to portfolio manager Brett McNeill.
Wider market uncertainty and ongoing concerns about the economy did not prevent this reporting period from exhibiting solid results overall, giving the market a confidence boost that saw the S&P/ASX 200 at 14% higher at the end of February 2024 compared to the start of November 2023.
Despite this rise, a number of factors paint a more complicated picture.
While downside risks undoubtedly remain, the Australian economy continues to exhibit low unemployment, low underemployment and high workforce participation. Coupled with increasing immigration and consequent high forecast population growth amounts to a tailwind for strong growth in the longer term.
Simultaneously, inflation and the economy are subdued due to high interest rates, resulting in the slowing of immediate growth alongside real household incomes, with impacts unevenly felt across different demographics.
Australia well positioned despite downside risks
Given the backdrop of cost-of-living pressures and regulatory risks, more companies appeared keen to talk down their profit margins and highlight their contribution to communities. Predictably, given community and government scrutiny, banks and supermarkets were at the top of this list.
There were also a number of profit downgrades from other companies and sectors, including Telstra and Seek, although we remain confident in their long term position in the portfolio to deliver appropriate returns.
Overall, the picture is one of households and businesses adjusting to economic conditions, weak productivity and rising unit costs for labour. Despite this, the Djerriwarrh portfolio is well-positioned to deliver on our objectives over the long term.
Consumer stocks exceed expectations
Key companies supported our strong performance in the half-year to 31 December 2023, particularly consumer stocks which were high, adding resilience and upside to the portfolio.
Sentiment has improved in the past six-to-12 months, in line with the market’s expectation of interest rate cuts in 2024. The reported sales and profit metrics from retailers such as JB Hi-Fi Ltd (ASX: JBH) and Wesfarmers Ltd (ASX: WES) exceeded market expectations.
Despite slowed growth, sales trading remained both positive and above market forecasts. This combined to send the share prices of stocks such as JBH and WES materially higher.
Both JBH and WES have market leadership positions, and are very well run by management teams that have built a strong track record of performance and credibility.
Technology a standout driven by data centre demand and AI
Growth in the tech sector was another standout during the period, once again providing good portfolio performance.
Technology companies held in the portfolio such as Macquarie Technology Group Ltd (ASX: MAQ) reported strong revenue and profit growth, aided by the megatrend of long-term demand from data centres and AI. Real estate company Goodman Group (ASX: GMG) is also now a significant player in the data centre sector. The share prices of these companies have reacted accordingly.
Our outlook remains cautiously optimistic
While we anticipate market uncertainty is likely to continue for some time, our long-term, diversified approach to investing in quality companies positions us in a good position to navigate any challenges.
The performance of companies in our portfolio this reporting season demonstrates the value of our approach.