Portfolio performance September 2021
September was a strong month for the portfolios, with our defensive positioning protecting the portfolios from the market drawdowns, and our tilts toward value investments and energy adding value as well.
Clients can access detailed performance reports here. Below is a short video summarising the performance and our current positioning.
Multi-asset market update
With the risk of Evergrande collapsing and concerns over the US government debt ceiling raising fears regarding growth in September, all major asset classes fell. With high valuations quality and growth equities were the most affected. Value stocks with lower market expectations fell by much less than higher priced peers. Bonds also gave back some ground as interest rate expectations increased somewhat.
The defensive positioning of the portfolio reduced the impact of markets on the portfolio, and our focus on value within asset classes also protected the portfolio further.
Multi-asset portfolio update
The expectations for growth are strong but moderating as reopening of economies becomes a reality and further economic stimulus becomes less likely. Inflation has increased in many countries but we believe it will be transitory and interest rate rises will be modest. The high valuations in risky assets globally leave little margin of safety for investors if growth disappoints, so we remain defensively positioned and are increasing our positions in investments that offer better value.
The strong returns in investment markets mean that even with the defensive tilt our portfolios are comfortably above their strategic return targets.
Equities market update
Over September the iron ore price continued to fall, partly driven by the risk of a collapse in Chinese demand as Evergrande teetered on the brink of collapse and the government there talked about reining in the property market. High priced growth stocks gave up last month’s gains, but local energy producers surged as the oil price rose and investors drove them closer to the valuations of their peers overseas.
While the market fell our portfolio rose, driven mainly by our overweight to energy and our underweight to iron ore. Our focus on value in healthcare and telecommunication also added value.
Equities portfolio update
We continue to be negative on iron ore prices and bank lending. We are positioning the portfolio in sectors and companies that have superior quality but have not been driven to extreme valuations. This includes some defensive assets and also cyclicals where the market has not factored in high growth in future earnings.
In September we exited SKI as the takeover offer for the stock became a near certainty. We trimmed positions in several stocks that had risen sharply and reinvested the proceeds into two new positions (IPL and WOR) and reduced our underweight in BHP.
Concentrated Absolute Return portfolio update
September was another strong month for the portfolio with our positions in TPG, Alumina and Qantas all rising by more than 10% as the broader market fell.
The portfolio is focussed on companies that are trading at depressed valuations following COVID and which should do well when the equity market recognises that earnings have normalised.
The portfolio’s largest positions are in industrials, holding a series of discounted companies that will do well if their earnings return to pre-COVID levels. Within the materials sector we have positions in select companies outside of iron ore and coal, whose prices we feel are unsustainable. The portfolio’s largest positions are in TPG and Ramsay Health Care, both of which are quality companies that are trading at deep discounts to historical valuations.
The portfolio has no holdings in the Australian banks, which are trading on elevated multiples of high earnings stoked by an unsustainable growth in mortgage lending, and no direct exposure to iron ore.
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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.
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