Outage prompts fund to exit ASX holding
The recent outage of the Australian Securities Exchange (ASX) has prompted one asset manager to dump the stock from its portfolio over IT risk.
The ASX was down for almost an entire day earlier this month as a result of the introduction of a new trading platform and the Australian Securities and Investments Commission described the failing as a ‘significant concern’ and that it would be conducting an investigation.
Blackmore Capital previously held the stock in its Australian Equities Income fund but had sold the position last month over the technology risks associated with the organisation.
“ASX’s defensive earnings quality and strong capitalisation remain attractive while its growth is modest (less than 5%) and its circa 2.8% yield is reliable. The valuation at more than 20x EV/EBITDA reflects its infrastructure characteristics rather than the valuations of any financial services peers, though by historic standards this is currently high.
“Its interest income will continue to be under pressure, low interest rates and limited prospect for change of RBA monetary policy. In addition to portfolio construction reasons, ASX has recently suffered four IT outages across four different aspects of its business, including equities trade, provision of market information, CHESS settlements and the launch of its new website.
“With the CHESS settlements replacement introduction delayed by two years to 2023, these incidents have increased the IT risk associated with the ASX.”
The fund had also reduced its exposure to BHP Group, Commonwealth Bank and NewsCorp, which were the fund’s three largest holdings, and sold fintech firm Xero.
“Bolstered by news of the potential of vaccine treatments for COVID-19 equity markets have rallied strongly in November. We think in the short-term valuations now adequately reflect this optimism and investors need to be mindful of the gap before vaccines are widely available to communities in 2021.”
The ASX was held in the top 10 of eight other funds with the largest weighting being held in the Aberdeen Standard Ex-20 Australian Equities fund at 5.2%.
It was also held by BetaShares Australian Sustainability Leaders ETF, BlackRock iShares Edge MSCI Australia Minimum Volatility ETF, BlackRock iShares S&P/ASX Dividend Opportunities ETF, ETFS S&P/ASX 300 High Yield Plus ETF, Platypus Systematic Growth, SSgA SPDR S&P ASX 200 Financials Ex A-REIT and VanEck Vectors MSCI Australian Sustainable Equity ETF.
AUTHOR
Laura Dew
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