Active Quantitative Equity (AQE)

Fund Update – September 2022



Australian stocks fell alongside global equity markets in September, with the S&P/ASX 300 Index down -6.3%.1 The fall was driven by the same factors that have impacted markets through most of 2022 – with central banks continuing to tighten rapidly due to persistent inflation, increasing the risk of a hard landing.

Real yields rose notably during the month as markets priced more rate hikes and equities de-rated. All sectors ended the month in the red, though Metals & Mining outperformed thanks to its slightly positive correlation to real yields.

Pharmaceuticals and Telecom also fell less than the broader market as investors desire for defensive earnings outweighed their aversion to higher real yields and the valuation headwinds for these sectors.

Attribution:

The State Street Australian Equity Fund outperformed the S&P/ASX 300 Index during September 2022.1 While the rise in real yields explained much of the variance in sector returns, attribution of returns was more mixed. Sector wise, good stock picking within Energy (New Hope Corp) and Staples (Elders) were key contributors towards relative performance. On the other hand, our underweight to Metals & Mining ex Gold (smaller exposure to BHP and not holding Pilbara Minerals) was the key detractor.

Notable changes during the month:

During the month of September, we slightly increased our position in select defensive names – including Waypoint REIT, Coles and New Zealand telcos Chorus and Spark NZ. These purchases were aimed at improving the overall risk adjust returns of the portfolio by adding exposure to defensive names that are showing improvements across valuation and sentiment scores and diversifying geographically to reduce market risk. These buys were largely funded by taking profit in insurance broker AUB Group which we believe is becoming more expensive on a range of valuation metrics.