Benchmark returns

A high level look at what’s moving over the past month. We leave our more detailed commentary to other notes.

Equities had a strong month, with Growth equities again outperforming Value equities. With your eyeballs, locate the MSCI World Value Index, and contrast to the MSCI World Growth Index. The 1 year return differential is particularly staggering. A 9.47% return over 12 months for Value is pleasing, although the 29.69% for Growth is something else all together.

We continue to think that Value equities are a much better ex ante investment opportunity, although this preferential tilt has certainly been wrong of late. And it’s not the interest rates either; “Growth” equities are commonly held out as lower rates beneficiaries, however the past year has been one of higher rates, (as has been the case now for the past several years, really) and Growth still trounced Value.

At the other end, international property and infrastructure traded weakly. The quarterly returns remain very strong, bouncing off what are, in our view, very low starting points.

Fixed income was somewhat mixed, although the Bloomberg Ausbond composite and Vanguard Australian fixed interest funds managed a respectable return, with yields dropping in the final few days of the month (something has carried into February, at least based on the mornings’ trade).

Regional equity indices continue to show a China that is under pressure. Recent activities to stabilise the market from the “national team” have not worked (efforts to instruct brokerage houses to ban short selling, or encouraging pension funds to up allocations). That has pressured the emerging markets overall, given China’s large (~24-25%) allocation with EM indices.

At the other end, Japan continues to outperform. A large Asia-focused hedge fund, who bet against this spread (long China short Nikkei) imploded over the month, subsequently closing up shop. The yen remains undervalued, in our view.

Domestically, Energy outperformed as geopolitical risks in the Middle East continued to put a bid under oil and gas names, specifically the re-routing of trade routes due to Houthi attacks in the Red Sea, and Saudi Arabia choosing to lower production targets in the medium term.

Material stocks have ebbed and flowed with the news out of China, with weak economic fundamentals on the one hand being offset by hopes of stimulus on the other. BHP, RIO, FMG have enjoyed record or near record share price highs, given strong iron ore prices; the rest of the materials sector however has been more challenged.

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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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