February 2024
Australian equities rose modestly in February and posted their first new high since August 2021. Profit season appeared strong on the surface, with almost twice as many companies beating analyst expectations (although profit expectations were relatively low to begin with). Overall bullish sentiment in equity markets were driven by a re-acceleration of the US cycle, soft landing expectations, as well as interest rate and tax cuts in Australia. From a sector perspective, Tech was the best performing sector on the back of strong results, while Energy and Materials were the worst performers.
Attribution:
The State Street Australian Equity Fund underperformed the S&P/ASX 300 Index during February1. Sector wise, being overweight mortgage insurer Helia Group and being structurally underweight Financials (big 4 banks) were key detractors. Conversely, being underweight Metals & Mining (BHP) and good stock picking within Industrials (Smartgroup) were key contributors towards relative performance.
Notable changes during the month:
We implemented a small amount of turnover in February, resulting in an increase in overall exposure to Utilities funded by decreases in Staples and Materials. Within Utilities, we increased our position in Origin Energy on the back of its low risk profile, stronger expected returns and stronger-for-longer dividend policy. Within Staples, we reduced our exposure to Woolworths due to falling sentiment and quality scores. These falls were driven by a surprisingly rapid sales slowdown and a decline in profitability amid elevated cost inflation and increased scrutiny on supermarket pricing.