Fund Update – October 2020

State Street Global Equity Fund

Global markets retreated through October 2020, driven by fading stimulus expectations, weak US tech results and rising COVID-19 cases. Utilities, Communication Services and Financials were the only sectors that did not fall, as Energy, IT, and Health Care underperformed. From a regional perspective, European stocks fared the worst – falling sharply as COVID-19 cases surged and as multiple countries entered nationwide lockdowns.

The State Street Global Equity Fund underperformed the broader index in October. From a sector perspective, good stock picking within Discretionary and not holding any Energy names were the key contributors towards relative performance. However, this was more than offset by negative stock selection within Communication Services and Health Care. Currency hedging lost -1.2% as the AUD fell on the back of risk-off market sentiment and dovish RBA comments.

Year to date, underperformance has been concentrated in two cohorts – the very expensive (where we are underweight) and the very cheap (where we are overweight). The strategy aims to minimise total portfolio volatility and as part of achieving that objective we have avoided the most expensive, high sentiment segments of the market that harbor higher valuation risks. While COVID-19 and central bank interventions have exacerbated certain trends that favoured the most expensive, high sentiment (stay-at-home) stocks, our current positioning (in reasonably valued, higher quality stocks with positive sentiment) reflects our strong conviction that these market imbalances will inevitably revert. As such, we stand by our belief that a risk-aware strategy requires a balanced view of return drivers.