FOR the past year, the hypothetical portfolio constructed for WA Business News has returned a negative 10 per cent on capital invested. This compares fairly consistently with general performance of superannuation for the past 12 months, which have shown a negative return of 7 per cent.
They were not the greatest of investments, but a very tough year is now behind us and all in the investment community are looking forward to better times.
The portfolio for WA Business News has held up fairly well, however, if you consider dividends paid throughout the period. The companies invested in that have paid dividends include Wesfarmers Ltd, Woodside Petroleum, Foodland Associated and Burswood Limited.
The dividends received represented approximately a 4 per cent fully franked yield, which grossed up would represent a negative return to the whole portfolio of negative 4 per cent.
This was possible because of the stellar performance of Foodland Associated, which was 20 per cent of the portfolio at the commencement of the year, and has also delivered a dividend yield of 6.1 per cent fully franked from our entry point.
There is no doubt that the portfolio was saved from further losses because of the original investment in Foodland. This again confirms the advantage of diversification.
The biggest loser was Dolomatrix International, the speculative inclusion in the portfolio, which showed a negative 80 per cent return on the original investment.
This shows the danger of speculative shares, as not only did we lose 80 per cent of our investment, we also did not have any return from dividends.
Wesfarmers Limited has had a mixed year, with a marked increase in dividends paid as a result of a large increase in profits.
This is a very well run company that has increased its net profit by 40 per cent from the corresponding period, but the share price dropped by 14.2 per cent over 2002.
This was a reflection on the change in sentiment over the year, with companies with a high price/earnings multiple being sold down due to pricing concerns.
Wesfarmers was a victim of this change in sentiment.
Woodside is another company that has had a mixed year, with the share market not very comfortable with its strategy and earnings outlook.
The market has been particularly concerned that management may use its excess funds to force it to buy an unnecessary acquisition, and as such has sold the stock down 7.2 per cent over the past year.
Concerns on the position of major shareholder Shell have also been a concern, with some speculating that the rudders are being manoeuvered from Holland.
Burswood is another WA company that has had its fair share of trials and tribulations. Following a capital raising in November, the stock has rebounded strongly from its low of 65 cents per share to trading around 75 cents. It’s probably a good stock to watch for 2003, with the State Government allowing the current 10 per cent shareholding cap to be cancelled in September 2003, allowing a potential takeover premium to be built into the share price.
So, all in all, 2002 was a mixed year for equities, with a brighter outlook ahead for this year.
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