Portfolio update June 2022

June was another volatile month for investment markets. Once again, our focus on more defensive assets and reasonable valuations has protected portfolios from market risk, reducing the impact of the turmoil on investors.

Watch the video for more, or read the full commentary below.

Multi-asset market update

Once again, investment markets were challenged in June. Equities fell both in Australia and internationally, property investments fell and bonds reduced in value as interest rates rose and fears of a recession increased. Equity sell offs were broad based, but quality exposures were generally less affected than more cyclical value names. Government bonds around the world fell as investors factored in further interest rate hikes to combat inflation. Credit exposures also fell, despite having less interest rate exposure, as risks of a recession increased and the compensation investors demanded for default risk increased.

Once again our defensive positioning and focus on investments with less valuation or business risk added value over the month. Our underweight to equities and property reduced the impact of market volatility on the portfolio, and our focus on the more resilient parts of the Australian equity market meant that the portfolio fell less than the benchmark.

Multi-asset portfolio update

The prospect of central banks around the developed world raising rates rapidly to tame inflation has quickly pushed bond yields from historic lows to around fair value given the growth rates we are seeing in economies. Falling growth expectations have also weighed on equities.

We have continued to reinvest funds from alternatives into government bonds as bond yields have improved. We remain defensively positioned overall but are likely to increase our equity positions further if the valuations of equities continue to improve.

Equities market update

The Australian equity market fell substantially in June. This was partly due to a worsening global growth outlook, but Australian equities fell more than international peers as the RBA raised rates by 50 bps at the start of the month. As a result interest rate sensitive stocks fell substantially. Consumer discretionary names, IT, materials and real estate names were worst affected due to the combination of a worsening growth outlook and valuation pressure.

Our defensive positioning added value again this month. We had lower exposures to the sectors most exposed to interest rates and within sectors are focused on companies with reasonable valuations. This mitigated much of the impact on the portfolio, and it fell significantly less than the broader market.

Equities portfolio update

Central banks around the world have started to raise interest rates, which is causing compression in the valuations of many high growth companies and should reduce demand well below current levels. While energy prices remain high, the prospect of lower demand and improving supply has started to reduce the prices of other commodities. Domestically, higher interest rates are likely to put stress on consumers and buy-now-pay-later firms are already reporting high arrears.

We have taken profits on Monadelphous and Tassal and reinvested in companies that offer good quality, more defensive earnings streams and reasonable valuations. Our team will continue to actively manage positions through this period of turmoil.  

Concentrated Absolute Return portfolio update

Our portfolio fell less than the broader equity market, due to a lower allocation to the most affected sectors. We took profits on Monadelphous and reinvested in Pendal (which had fallen from where we sold previously). We also sold Tassal after a take-over offer cause the stock to rerate, then reinvested in Monadelphous, which had fallen 20% from the price where we sold it.

The portfolio is focused on companies that are trading at depressed valuations following disruptions due to COVID and inflation in commodity prices. These companies should do well as conditions return to normal.

The portfolio has a large allocation to industrials, where we hold 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, Brambles and Virgin Money UK, each of which offers good value given its earnings potential. The portfolio has a small allocation to Australian banks, as rising interest rates should be positive for near-term earnings.

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.