Australian equities gained ground in July on the back of rising oil prices and a rally in energy stocks. The RBA paused policy rate hikes during the July meeting1, as the Board became increasingly comfortable with the view that higher interest rates are working to slow growth. With inflation slowing without any rise in unemployment (so far), investors are more hopeful of a soft landing and this supported the outperformance of cyclicals. From a sector perspective, Energy was the strongest performer, while Financials and IT also outperformed in Australia. Materials, Consumer Staples and Health Care sectors were the relative worst performer
Attribution:
The State Street Australian Equity Fund underperformed the S&P/ASX 300 Index during July2. Sector wise, our lower than benchmark exposure to Financials (underweight big 4 banks) and higher than benchmark exposure to Staples (Coles and Woolworths) were the biggest detractors from relative performance. Conversely, good stock picking within Metals & Mining (Fortescue Metals) and Materials (Orora) were the key contributors.
Notable changes during the month:
We implemented a small portfolio turnover in July, resulting in a slight increase in overall exposure to Financials, Communication Services and our Sentiment factors. We increased our Financials exposure via mortgage insurer Helia Group on the back of strong margins, upward trending sentiment measures and still attractive valuations. We also strengthened the portfolio’s defensive exposure via telecommunication infrastructure provider Chorus, which was supported by its relatively strong quality and value scores. Purchases were funded by selling out of chemicals manufacturer Incitec Pivot, following a deterioration in its sentiment scores.