Market performance and global macro

Today’s topics

  • Portfolio reporting
  • Market performance
  • Global macro

Portfolio reporting

Diversified investment portfolios

We’ve recut the format of our monthly portfolio reports. The snapshots here don’t quite do them justice. We will circulate this new(ish) style format over the first couple weeks of May.

You have of course seen most of it before, just in different layouts, and, with slightly less detail. For example, the country exposure fits quite neatly into the below, whereas our previous reports would just lop it off at the top 10.

Direct equities

The report neatly depicts drawdowns, and useful peer group comparisons.

Alongside the holdings analysis.

Market Performance

The top performers over the past month-to-date have been an extension of the same winners over the past 6 months, namely mining, which makes up more than half of the list shown below. It is safe to say we don’t own any of those names, believing, in most instances, that they range from overvalued to very overvalued.

Price-book: Miners

For the most part, the commodity names are over-earning, with temporary supply side disruptions meeting “reopening” demand, causing price spikes. Thus, the price-earnings ratios can be misleading, making the PE’s appear low, when, on normalised earnings, they are much higher, in some instances by more than double, in our view.

Shown below (with the exception of S32), most names in the diversified metals and mining sector are at the extreme upper end of historical ranges, using asset based multiples like price-book.

Price-sales: Miners

We can also get around the issue of over-earning, somewhat, by looking at price-sales metrics, which again suggest that many of these names have become unusually expensive. That’s a red flag to returns moving forwards.

Especially given the China data, which is not overly strong, to our minds. When the COVID supply squeeze normalises, there may be less “sustainable” demand than first thought.

As a brief aside, the supply side issue we refer to is mostly Vale, the Brazilian major iron ore exporter. The dam disaster, amongst other issues, took about 100M tonnes out of the sea borne market. At a time of flat (on a 5 year basis) Australian iron ore schedule, the steady march of China’s steel demand produced the supply side squeeze.

We think Vale will return to the market, and with the incentive price of around $200/t, everyone, everywhere, will be thinking about adding supply, as quickly as they can.

It is a similar idea for copper, where Chile (and LatAm more broadly) are swing producers, and supply has disappointed in recent years. There is no better incentive for human ingenuity that extreme prices.

Price book: Discretionary retail

Returning to our valuation analysis, specifically, our concerns about overvaluation; we can see this with the mix of discretionary retailers, here, on price-book again.

Price-sales Banks

The banks are likewise at the upper end, and in some instances, exceeding their historical peaks.

And are amongst the world’s most expensive, on a price-book basis.

As such, we feel comfortable with either similarly expensive high quality defensives, or, considerably cheaper diversifieds.

Global macro


There’s a very popular chart doing the rounds, which looks at the relationship between the copper/gold ratio, and the US 10 year. It is meant to show a very tight (e.g. close) relationship between the two, with the 10 year being a proxy for growth, and copper (growth) when outperforming gold (defensive) puts upward pressure on the ratio, creating the graph you see below.

And the key takeaway is that either copper comes down, or the yields go up. We think it more likely that copper comes down, because the cure for high prices is high prices, but, we also expect the 10 yr to move up towards the average that prevailed pre COVID (which oscillated between 2-3%, with 2.5% as our base case).

US macro

Durable goods orders were out overnight. As expected, the very strong prints continue. We expect, with trillion dollar fiscal and accommodative monetary policy, that GDP growth will hit over 7% in coming quarters.


We note the COVID situation in India. Turning our mind from the awfulness of the situation, we simply note that the India focused emerging market ETF has held up markedly better than expected, as has the Indian rupee. We reduced our emerging market exposures to almost zero in our diversified investment portfolios, on concerns about the virus.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Receive our investment insights

Something went wrong. Please check your entries and try again.