FY returns

The alternatives universe (hedge funds, private equity etc) doing a good job of showing the diversification benefits from an allocation. In a month in which most assets are down, you can see the Alts benchmark proxy lifting.

The small ordinaries, locally, have been crunched. The index is full of companies that, whilst growing, on average lack the scale and market power necessary to pass on cost inflation, and are also full of mid-tier lower quality mining companies, in a month in which industrial metals have (mostly) fallen.

Style and strategy (e.g. value, growth, quality) not so important in a month dominant by purely macro premia (rather than factor premia).

Zooming out, the past month has been a difficult one for any multi-asset portfolio, although an EM allocation (slightly surprisingly) performed well. We increased our EM exposure over the past quarter, a move that will have worked well, albeit our overall allocation is small, and only modestly above the benchmark.

Central banks are in an inflation fighting mode, that means they want to get the price of everything lower, and as the below suggests, they are succeeding. Copper, iron ore, oil, rates, all lower.

Risk and return graphs over the long run. Not for any great point about asset allocation, but rather because I enjoy seeing the plot. It’s also a good highlight of why we tend to view a commodities allocation as a tactical, but not generally strategic, allocation, beyond that which we have in our direct equity portfolios (e.g. a BHP or RIO, for index purposes) or that which is embedded in the underlying managers.

By equity market region, China continues to rerate, post a vastly more business friendly equity market friendly stance adopted by the state (reducing some of the pressure on Didi, Alibaba, Tencent, Meituan in areas of new games, IPO’s, dual listings).

By ASX sector, materials and financials underperformed. This has benefitted our portfolio positioning greatly, given these contain our largest industry group tilts (we are overweight the insurers, which performed well, and underweight everything else in the sector, likewise with materials we are overweight packaging, but underweight metals and mining).

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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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