The Australian Edge Portfolio lost 1.3% in U.S. dollar terms during 2014. This includes performance for positions that were closed and opened during the year for the timeframe they were held in the Portfolio. The S&P/Australian Securities Exchange 200 Index was down 2% in U.S. dollar terms from Dec. 31, 2013, through Dec. 31, 2014.

Aggressive Holdings lost an average of 11.1% versus a loss of 9.4% for IQ Australia Small Cap ETF.

Conservative Holdings provided a bright spot, generating an average total return in U.S. dollar terms of 6.6%. iShares MSCI Australia ETF was down 4.7% for the year.

Note that the Australian dollar depreciated 8.3% versus the U.S. dollar during the year, eroding the already fair-to-middling relative performance of Australian stocks on their home market. CurrencyShares Australian Dollar Trust was down 6.9%, its performance aided by dividends.

Minus Signs

Aggressive performance was dragged down by exposure to iron ore via BHP Billiton Ltd. (-28.1%), Mineral Resources Ltd. (-36.7%) and Rio Tinto Ltd. (-15.4%).

Mining-services outfit Ausdrill Ltd. (-7.0%) continued the slide it started in 2013, and we sold it in the March issue.

We cut MinRes to “hold” in the October 2014 issue. In the interest of trimming our iron ore and commodity exposure to names with the scale to ride out the current turbulence, we’re selling it from the Portfolio. MinRes is now a sell.

Oil-and-gas exposure also proved a millstone during the second half of the year, as Origin Energy Ltd.’s (-21.5%) and Oil Search Ltd.’s (-10.6%) double-digit losses resulted from declines from near-term highs that commenced once crude’s collapse accelerated in the late summer and early fall.

Woodside Petroleum Ltd. (-5.4%) held up relatively well, helped by management’s commitment to a new, significantly higher dividend payout.

WorleyParsons Ltd. (-41.5%) is the biggest loser for 2014, hurt by both the mining slowdown and the collapse of crude oil prices.

We’re cutting WorleyParsons’ rating as well. We’ve held on so long due to the company’s global reach, strong reputation among commodity producers and solid management. We have, however, been fighting the tape on this one for far too long.

WorleyParsons is a hold.

Other weak spots include Crown Resorts Ltd. (-29.4%) and JB Hi-Fi Ltd. (-23.4%), which posted losses after notching strong gains in 2013.

We’re comfortable with the exposure Crown provides to China’s middle class, and we remain confident that JB Hi-Fi is a solid way to play the Australian consumer.

Positive chords were struck by Amalgamated Holdings Ltd. (25.3%), which benefited from a strong ski season at its Thredbo Alpine resort, Spark Infrastructure Group (27.5%), the top-performing Aggressive Holding, and Sydney Airport (19.3%), one of last month’s “best buys” and a great way to play Australia’s role in the Greater Asia economy.

Sydney Airport established a new 52-week high on January 16 on the ASX.

Plus Signs

The table “Portfolio Performance” illustrates a great point: The Conservative Holdings provide the best foundation for U.S.-based investors looking to introduce global diversification to their portfolios via exposure to Australia.

Our Conservative Holdings have outperformed Australia’s equity benchmark, the S&P/ASX 200, and the major exchange-traded funds with Down Under themes during each of the three full years of AE’s existence and also during the abbreviated 2011 period.

The 6.6% average return for 2014 includes a full year of Cardno Ltd. (-52.1%), which is now an Aggressive Holding due to its sensitivity to conditions in global commodities markets.

Cardno CEO Michael Renshaw, in office less than a year, recently “resigned” in a “joint” decision with the board. He has been replaced on an interim basis by CFO Graham Yerbury.

We’re cutting Cardno’s rating due to internal turmoil amid external uncertainty. Cardno is now a hold.

Although AGL Energy Ltd. (-11.4%) continues to struggle with weak electricity demand, it continues to add assets and grow its dividend.

We’ll also stick with Wesfarmers Ltd. (-6.7%), a diversified conglomerate with major retail exposure via its Coles supermarket unit, and Stockland (-7.7%), one of Australia’s biggest real estate investment trusts that is well positioned to benefit from the ongoing housing boom Down Under.

GPT Group (23.0%) was the top-performing A-REIT during 2014, while Australand Property Group (17.1%) posted a solid return due to its acquisition by Singapore-based Frasers Centrepoint Ltd. in October 2014.

APA Group (23.9%), like AGL, one of our original eight Holdings, continues to prove its worth as a long-term wealth builder. We also remain high on another of our original eight Holdings, Telstra Corp Ltd. (9.9%), which pushed out to a 52-week high on the ASX on January 16.

Another of that wonderful eight, Envestra Ltd. (23.5%), was acquired by a consortium led by Cheung Kong Holdings Ltd. Envestra generated a total return of 131% from Sept. 26, 2011, through Sept. 12, 2014.

Other notables include CSL Ltd. (17.0%), DUET Group (17.2%), M2 Telecommunications Ltd. (23.2%), Ramsay Health Care Ltd. (22.8%) and Transurban Group (21.7%)—solid businesses that generate stable and growing income.

Aggressive Update

Woodside Petroleum (ASX: WPL, OTC: WOPEF, ADR: WOPEY) managed to break records for both annual production and annual sales revenue during 2014, although output declined during the fourth quarter.

Woodside produced 95.1 million barrels of oil equivalent (boe) during 2014, a 9.3% increase compared with 2013.

Sales revenue of USD7.1 billion broke the company’s previous record, set in 2012, of USD6.35 billion.

But production for the last three months of the year declined 7.1% sequentially to 23.4 million boe, due primarily to the planned shutdown on one of the five processing lines at the company’s North West Shelf liquefied natural gas project.

And sales for the quarter were down 10.2% to USD1.76 billion, as the average oil price for the last three months of 2014 was USD77.07 per barrel, compared with USD103.46 in the third quarter.

Crude has continued to slide and now sits below USD50 per barrel.

And Woodside, like other global E&Ps, is responding with a CAPEX cut as part of its effort to maintain profitability. Management will detail its new 2015 budget when it releases full financial and operating results for 2014 on Feb. 18, 2015.

Woodside also guided to 2015 production of 84 million to 91 million boe, which would represent a decline versus 2014 of at least 4.3% and as much as 11.7%. 

The company will also book noncash writedowns of USD250 million to USD400 million directly related to declining oil prices.

The writedowns won’t affect the profit figure used to calculate Woodside’s 80% dividend payout ratio.

Woodside remains a buy for aggressive investors up to USD42.

Conservative Update

Transurban Group (ASX: TCL, OTC: TRAUF) reported strong improvement in both statutory and proportional toll revenue for the first half of fiscal 2015 on the back of strong traffic growth in Melbourne and Sydney.

During the three months ended Dec. 31, 2014, Transurban’s (ASX: TCL, OTC: TRAUF) proportional toll revenue increased by 37% versus the prior corresponding period, to AUD385.4 million.

First-half proportional toll revenue was up 36.7% year-over-year to AUD760.6 million.

Statutory toll revenue grew by 63.5% during the second quarter to AUD373 million, driving half-year growth of 63.7% to AUD737.7 million.

The results reflect Transurban’s acquisition of Queensland Motorways’ assets and concessions, which were purchased in July 2014. Transurban now holds a 62.5% share.

Traffic on Transurban’s CityLink road in Melbourne was up 3.2% for the quarter and increased by an average of 9% across the Westlink M7, Hill M2 and Lane Cove Tunnel in Sydney.

In Northern Virginia, Transurban successfully opened the 95 Express Lanes in December 2014, ahead of time and budget, enhancing the company’s network position of Express Lanes in the Capital Region and bringing the total lane kilometers of that network to 199 kilometers.

The 495 Express Lanes continued to experience strong traffic and revenue growth. Average workday toll revenue for the quarter grew 57.9% to USD133,055, and on Dec. 2, 2014, 495 Express Lanes achieved record daily toll revenue of USD200,767 on the back of 51,684 trips for the day.

Transurban remains a buy for consistent income and long-term growth under USD7.50.