Active Quantitative Equity (AQE)

Australian stocks materially underperformed its global counterpart as the ASX lagged in its pricing of higher-than-expected inflation and tighter monetary policy. This lag was reflected in the 10-year bond yields rising 59bps to 2.08%1, with a corresponding flattening of the yield curve as the market brought forward expectations of a rate hike by the Reserve Bank of Australia. Technology was the best performing sector, with a gain of +2.4% and again the rise was likely supported by lower real yields. Gold stocks also performed strongly, reversing some prior month underperformance.

Attribution:

The State Street Australian Equity Fund underperformed the S&P/ASX 300 Index during October. The underperformance was largely driven by negative stock selection within Financials (not holding Macquarie, NAB and being overweight AUB Group), Metals & Mining (Rio and Mineral Resources) and Health Care (Ansell, Fisher & Paykel Healthcare and not holding CSL). On the other hand, good stock picking within Discretionary and Real Estate were key contributors towards relative performance. Stocks that appeared more attractive on Value measures typically underperformed during the month, as cheap Industrials and Miners lagged on the back of a flattening yield curve.

Notable changes during the month:

  • During the month, we took some profit in electric utility company AusNet upon receiving an attractive acquisition offer from multiple parties. We also reduced our allocation to Rio Tinto upon seeing a reduction in investor sentiment.
  • We increased our cyclical exposure through select Energy and Financials (Medibank) as valuations became more appealing.
     
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