Active Quantitative Equity (AQE)

Fund Update – October 2022



Equities had a strong month in October on the speculation that central banks are nearing the peak of policy tightening which lifted sentiment in share markets. Australian equities (S&P/ASX 300 Index) rallied +6%1 but underperformed global developed markets, as investors responded to a more dovish than expected RBA 25bps hike to 2.60%. From a sector standpoint, Financials were the best performer as banks continued to benefit from lucrative deposit pricing. Energy and Real Estate also performed strongly while Materials, Staples and Health Care underperformed.

Attribution:

The State Street Australian Equity Fund underperformed the S&P/ASX 300 Index during October.1 Sector wise, our lower than benchmark weight to Financials (not holding big 4 banks) was by far the biggest detractor from relative performance. The major bank’s outperformance in October was largely driven by multiples re-rating, which is being reflected in improvements of our Sentiment signals in recent months. On the positive side, our underweight to Metals & Mining ex Gold (namely BHP and Fortescue Metals) and good stock picking within Health Care (not holding CSL) were key sources of value add.

Notable changes during the month:

During the month of October, we rebalanced the portfolio which resulted in a marginal increase in overall portfolio expected returns and its overall defensive characteristics. This involved buying into lower beta and improving Sentiment names like Treasury Wine Estates and Atlas Arteria. At the same time, we took profit in a few names that have benefited from very strong momentum in recent months – including Newcrest Mining, New Hope and AUB Group.