Active Quantitative Equity (AQE)


Australian stocks enjoyed a year-end rally, as the S&P/ASX 300 Index rose +2.7% in December 2021. The positive return during the month was driven by Mining and Banks. Utilities was the best performing sector, with strong gains for AGL and Origin Energy – which mainly reflected investor positioning for higher electricity prices in 2022. Despite the new highs in Australia’s COVID-19 case count, the prevalence of the less severe Omicron variant is proving to have a smaller economic drag and market impact. IT, Health Care and Staples were a drag on market returns, with falls due to stock specific factors. Tech was the worst performing sector as Afterpay tracked a 22.5% fall in its acquirer Square. Within Health Care, the fall was driven by CSL after its takeover offer for Vifor Pharma. For Staples, the fall was driven by Woolworths and a disappointing 1H22 trading update.
 
Attribution:
The State Street Australian Equity Fund outperformed the S&P/ASX 300 Index during December. The outperformance was largely driven by good stock picking within Health Care (not holding CSL and overweight Healius) and our underweight position in Tech (not holding Afterpay). On the other hand, negative stock selection within Financials (not holding CBA & NAB and overweight Janus Henderson) and being underweight Miners (BHP and Fortescue Mentals) were key detractors.
 
Notable changes during the month:
Turnover was relatively muted during December. We exited the small position in Fortescue Metals Group (FMG) within the portfolio and reallocated the capital to other diversifying opportunities with better expected returns. While FMG continues to trade at relatively attractive valuations, investor sentiment has deteriorated in recent months relative to peers.