The Northward Equity Income Fund returned 1.53% over the quarter compared with the S&P/ASX100 Accumulation Index return of 1.14%. The Fund’s income focus and lower volatility, compared to the broader sharemarket, limited the impact of market falls over June and saw the fund outperform its benchmark by 1.06% over the month and 0.39% over the quarter.
Income distribution for the quarter was strong at 2.55 cents per unit and a running yield of 8.16%. The fund generated an additional 1.15% in franking credits over the last year.
The June quarter was a strong period for income from the assets the fund was invested in. The fund was able to generate significant dividend income from Westfield Retail Trust, Westfield Group, Industrial REIT and David Jones. The fund was able to generate significant option income from call overwriting in BHP Billiton, QBE Insurance, Oil Search and James Hardie Industries.
Over the quarter, sectoral performance saw Utilities (+8.3%), Energy (+6.2%), Telco’s (+2.62%) outperform. Notable underperformers during the quarter included Materials (-3.86%), Health Care (-1.32%), and Consumer Discretionary (-1.27%). It was a busy quarter for Mergers and Acquisitions (M&A) with David Jones, held in the Fund, announcing a takeover by Woolworths Holding, based in South Africa, for $4.00 per share. Internationally, the S&P500 hit new highs and gained +4.7% for the quarter. Volatility across all asset classes continues to be suppressed and this saw the volatility index (VIX) trade to seven year lows and close the quarter at 11.57. The US Federal Reserve (Fed) continued to taper its asset purchases as US economic activity continues to rebound. In Europe the European Central Bank (ECB) cut its key interest rates in June by 0.10% whilst in China the central bank announced measures to support growth by lowering the reserve requirement ratio for small banks aimed at lending to the agriculture sector. Locally, the Government delivered its first budget and this weighed on consumer confidence towards the end of the quarter. Australian economic data over the quarter was mixed. March quarter GDP expanded above consensus forecasts, at 1.1%, while building approvals fell in April, down 5.6% (+1.1% year on year).The Reserve Bank of Australia (RBA) left the cash rate at 2.5% and retained a neutral stance. The Australian dollar (AUD) continued to grind higher over the course of the quarter and gained 1.8%, driven by continued strong demand for AUD bonds.