FirstWrap commentary – 31st December 2023

by Chris Limberg on Dec 31, 2023

FirstWrap commentary – 31st December 2023

The ASX200 closed 553 points higher, a 7.27% increase for the December quarter. With December alone accounting for the bulk of the increase of 515 points. The Reserve Bank (RBA) raised interest rates again in November to 4.35% conceding Australian inflation has peaked but remains higher and persistent with estimates returning inflation to the target band of 2-3% by end of 2025.

This strong rally had a positive contribution to the investment strategy with Macquarie Bank (MQG) and MA Financial Group (MAF) providing strong returns. The equity exposure remains low in the strategy but has provided a strong positive contribution to returns. The listed income investments also provided some growth along with consistent income.

The portfolio weightings remain conservative given the current market but pleasingly have provided above market returns over the 1 and 3 year periods.

Current portfolio target weightings are:

Asset ClassTarget % allocation
Cash10 – 15%
Aust Equity20%
Fixed income (listed)20%
Fixed Income (unlisted)40 – 50%

These weightings are being constantly reviewed with a mind to what is occurring in the economy and markets. We will maintain an overweight cash position which will provide some capital protection while looking for the opportunity to invest these funds when we see appropriate valuations or investment opportunities.

The cash from income, dividends, interest and employer super contributions will continue to build in the FirstWrap cash account which will  be allocated as opportunity present in the coming quarters.

Actions taken through the quarter:

  • During the quarter the cash balance was maintained with an average weighting around 10% – 15% of the portfolio. For those with higher cash balances we invested a portion of the cash in short term 3 to 4 month term deposits paying interest of 5.1% p.a. This cash balance provides the opportunity to invest on market weakness and volatility.
  • Investments in Metric Direct Income fund, MA Priority Income fund, GCI, MOT and MXT continued to pay monthly income with yield ranging from 8% to 11% p.a. and will benefit from the RBA interest rate increase in November.
  • Macquarie Bank (MQG) paid their semi-annual dividend during the quarter.

New Investments Summary

Metric Income Trust (MXT) announced that they would be doing a capital raising and share purchase plan for existing shareholders. The share purchase plan will take place early January and the current share price is trading at a premium to the share purchase plan price. This will provide some capital growth and MXT has a current running yield of 9% p.a. with income paid monthly. Cash will be used to participate in this share purchase plan in the coming quarter.