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Good afternoon,

The ASX 200 followed Wall Street lower early this morning, falling from 5960 to 5756, by lunchtime though the market had recoved to 5875. 

I'm going to tap this note now (about 1.30pm) because I've got plans tonight (occassionally I like to spend my Friday night not in front of the monitors!)

The market has put on 14% this quarter so far which is nice.
Financials gave up half their gains, energy slipped back while defensives sectors outperformed... the reverse of the catch up rally of the past two weeks. 

It's a battle between value/cheap/rubbish stocks and growing/well run/expensive ones.  Here's a fancy chart of the S&P500 Value stock index vs the S&P500 Growth stock index, both indexed to 100, 1 month ago. 

You can see value had a nice run during the end of May/start of June but gave back most of its lead this week.
Looking over a longer time horizon (last 10 years), you can see why I think all you baby-boomber, Buffett-idolising, Alan-Kohler-watching "value investors" need your heads read. 

Growth stocks have outperformed Value by 160%. 
The ASX 200 (assuming dividends are reinvested) has underperformed both, in AUD terms by c. 50% and c.250% respectively. 
The beginning of the end?

With the US stock markets having a negative day or two and our market falling as well, I had a few clients asking me if this was the beginnings of another correction.


If you've been reading my notes for a while you'll already know the answer to this question... I don't know.  

But let's look at the bond market data to see if we can get an idea.  Bond markets are generally way better at pricing risk appropriately than equity markets.

For one, nobody thinks credit risk in the banking sector is a problem.  Nobody thinks these banks are going under anymore. Here's the TED spread
Here's an example closer to home, the spread to treasuries on a Westpac floating rate note... see how the spread blew out in March?  Now it's back to business as usual.
So no, it's not the beggining of the end.. just the wild ride I talked about 2 weeks ago (remember: elevated volatilty = elevated returns)
Australian Shares Portfolio

Very grateful to those who have put the first few dollars into the Seneca Australian Shares SMA Model Portfolio on Praemium.  I rolled my own superannuation into it this week and its such an easy process.  

We've put together a little flyer for those who'd like a general overview of what its all about (click the image below). 

If you'd like to invest, complete your details here
If you have any questions, feel free to email me

And someone please use the QR code... fairly happy with myself figuring out how to do that!
New interview

I caught up with my good friend and property guru Julian Muldoon from 1Group Property Advisory over Zoom recently to talk about markets, COVID-19 and property investing.  Click here or the image below to check it out. 

Jules aside from being a great human, he is a legitimate expert in his field.  Data-driven, objective, honest and his business 1Group cover property across Australia. I can't recommend him more highly if you're looking to buy a residential, commercial or industrial property for your family, business or investment portfolio.
My personal favourite company

If I could only ever buy one stock, it'd be Adobe (ADBE).  I just reckon it's the best business (probably in a close second would be Microsoft, MSFT).  

Adobe reported Q2 financial highlights this week, growing revenues 14%. 

Shantanu Narayen, president and CEO said “Adobe’s strategy to empower customers to create the world’s content, automate critical document processes and enable enterprises to engage with their customers digitally, drove record revenue in Q2,”

“The tectonic shift towards ‘all things digital’ across all customer segments globally will serve as a tailwind to our growth initiatives as we emerge from this crisis.”

However, due to COVID19, management withdrew 2020 guidance.  Market didn't mind too much though...

While I'll leave you to Google the share price chart, here's what actually matters.  Revenue, Free Cash Flow & Earnings, per share, indexed at 100, 5 years ago. 
....and clients still ask me every week "Which is the best bank share to buy at the moment?"
Movers & Shakers 

Nice to see two of the larger overweights in the model portfolio sitting on top of the charts this week.  IPH made another nice, accretive acquisition at a fair price.  Remember what I said about the leaders taking market share during recessionary periods?
More action on the red side of the ledger this week.  Mining services, building materials and essentially all the value stuff as we discussed got whacked.  

It has thrown up a few opportunities though.  While the retail stuff doesn't particularly inspire me, I'm happy to take a punt on the renovation market (which we've talked about before).  Reliance (RWC) in those mid to high $2's is looking naughty (in a good way!)  Adbri (ABC) and CSR (CSR) also play the same sort of theme. 

Amcor (AMC) is too cheap under $14.00, that won't last.  

And while the REIT sector is cheap and had a good run - I'm not sure what the market is going to look like.  I'm not a property bear, but I don't know if its the best place to invest.  Our investment committee runs a range of model portfolios, one of which is "Seneca Property & Infrastructure", which invests in listed and unlisted funds around the world.  Anyway, we just cut our 2 property funds in favour of 2 more globally focused infrastructure funds, 4 of the 5 funds in the portfolio are now infrastructure funds. 
Gerry Harvey about to get his semi-annual allowance payment, but I wouldn't own those shares out of principle!
Short report

Webjet (WEB) shorts shot up notably, during may short positions have increased from 4.5% to c.10% of the stock. 

Meanwhile, Challenger's (CGF) shorts have halved which might explain its share price increasing from $4.00 to $5.00.
Have a good weekend, 
LL
Luke Laretive
CEO & Investment Adviser

T  +61 3 8639 1601  |   M  0451 122 656 | lukel@senecafs.com.au
Level 2 Professional Chambers
120 Collins Street Melbourne VIC 3000 
AFSL No. 492686
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