The RBA hiked by 50 basis points. It is the last paragraph with the crucial bit, that emphasises the hawkish tilt in the RBA commentary.

Key macro market measures remain consistent with this tightening bias, namely yields up (both real and nominal), risky assets (equities) lower and credit spreads wider (BBB+ corporates).

The commodity strength visible above (copper, iron ore, oil prices) reflects the supply side constraints that give (partial) rise to the inflationary pressures that the RBA is seeking to offset.

Unsurprisingly, the stocks getting crunched today are the long duration tech / secular growth stocks, all of which we’ve been avoiding for exactly this reason.

Our direct equity portfolio is defensively positioned, with a beta of ~.85x, as such we tend to outperform on down days (+30bps today, from Bloomberg’s intraday attribution analysis).

No real change to our sectoral positioning: the consumer remains over-leveraged, and the pull-forward in demand for goods over the pandemic represents a real overhang to consumer discretionary stocks, as does the rising rate environment for long duration stocks (infrastructure, REITs, secular growth tech like XRO, PME, WTC, XRO, BRG, APE, JHX).

Our overweights to the insurers held up, with QBE, SUN, and MPL all outperforming the benchmark, and the sector more specifically. Whilst the banks have positive rates beta due to (potentially) higher NIMs, they also come with the drawback of higher potential bad and doubtful debt charges, whereas the insurers are less (or not at all) exposed to this loan loss aspect, but do benefit from higher income on technical reserves and shareholder funds.

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.

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