Active Quantitative Equity (AQE)

Fund Update – July 2022



Australian stocks rose in July as part of a broader global equities rally. The S&P/ASX 300 Index rallied +6.0% as markets pared back expectations for sharp rate rises on the back of slowing growth and falling bond yields. The improvement in investor sentiment was also seen in bond markets, as the Australian 10-year yield lowered by 60bps to 3.06%. From a sector standpoint, IT was the best performer with falling bond yields providing a valuation tailwind – in contrast to the first half of 2022. Lower bond yields also supported real estate, led by REIT managers CHC and GMG. Metals & Mining was the worst performer, driven by a decline in commodity prices and negative sentiment towards China exposed assets.

Attribution:

The State Street Australian Equity Fund underperformed the S&P/ASX 300 Index during July.1 The portfolio’s preference for lower risk, defensive names was a major detractor as investors favoured cyclical growth during the month. Sector wise, negative stock selection within Staples (Elders and Graincorp) and our underweight to Financials (big 4 banks and Macquarie) were key detractors from relative performance. On the other hand, our underweight to Metals & Mining and good stock picking within Energy (New Hope) were key contributors.

Notable changes during the month:

During the month of July, we increased our position in energy infrastructure business APA Group on the back of improving Sentiment and Quality scores. APA offers a diversified and defensive stream of earnings, alongside a robust balance sheet. In recent months, we have also observed a marked improvement in APA’s sales and earnings expectations relative to peers. On the other side of the ledger, we reduced our position in JB Hi-Fi and Harvey Norman, as multiple Sentiment signals have begun deteriorating.