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Antares Dividend Builder - July 2017

Antares Dividend Builder delivered a return of 0.2% (net of fees) for the month of July, outperforming its benchmark by 1.1%.

Australian industrial shares were modestly weaker in July, with the S&P/ASX 200 Industrials Accumulation Index falling 0.9%. The month was characterised by quite strong sectoral divergence. Healthcare stocks and other companies with significant US dollar earnings came under pressure as the Australian dollar ($A) rose 4.1% to 80 US cents, undermining the $A value of their offshore earnings. Utilities and telecoms also underperformed, impacted by higher bond yields and ongoing perceptions of earnings and dividend risk amongst telecom stocks due to competitive pressures. By contrast, banks and consumer staples were the main outperformers.

The Fund benefited from an overweight position in Crown Resorts (CWN) that performed well. Chinese authorities released ten CWN employees that had been held since October 2016 on suspicion of “gambling crimes”, although the head of CWN’s International VIP programme remains in custody. The Fund does not hold a position CSL and this contributed positively to relative performance as the stock weakened in response to the strong rise in the $A that undermines the value of CSL’s foreign currency denominated earnings.

The main detractors from relative performance were overweight positions in Sydney Airport (SYD) and Spark Infrastructure Group (SKI). SYD was negatively impacted by concerns about potential passenger delays associated with upgraded security measures aimed at countering terrorism threats. However, June passenger traffic data was solid, with a 3.6% rise in domestic passengers over the year to 30 June 2017 and a strong 9.7% rise in international passengers. SKI was negatively impacted by higher domestic bond yields. SKI also announced that TransGrid issued approximately US$750m of senior secured notes in a US private placement with the funds to be used to repay maturing debt. SKI owns 15% of TransGrid.

The Australian share market is facing some headwinds at present, with the strength in the Australian dollar undermining the outlook for companies with offshore earnings and investors increasingly nervous about a sharp slowing in the domestic property market. The latter has negatively impacted banks and consumer facing stocks as investors fear a slowdown in consumption if the property market comes under pressure. The potential entry of Amazon into the Australian market is also contributing to the de-rating of retail stocks. The resource sector has rallied in response to better Chinese growth data although for this to be sustained, the Chinese economy will need to show ongoing signs of improvement. From a valuation perspective, the overall market is still quite fully valued according to Goldman Sachs data, trading on a PE of around 15.5 times which is 5% above its 20-year average.

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