Equities had a strong month in October on the speculation that central banks are nearing the peak of policy tightening which lifted sentiment in equity markets. However, the US yield curve remains inverted and has continued to shift upward, with expectations of higher rates evident across all maturities. An inverted yield curve has historically been a precursor to recessions and signals further downside risk for equity markets. Commodity prices showed mixed trends in October - Brent Oil prices increased amid EU trade embargos lowering supply and production, while Iron Ore prices dropped due to seasonally lower steel demand and higher supply levels. Sector wise, Energy and Industrials led the board while Real Estate and Communication Services lagged.
Attribution:
The State Street Global Equity Fund outperformed the MSCI World ex Australia Index during October.1 From a country and sector perspective, good stock picking within US Discretionary and US Health Care were key contributors towards relative performance. On the other hand, negative stock selection within US Industrials, being underweight US Banks and holdings of Japanese IT hardware were key detractors. Currency hedging detracted 46bps from performance during the month.
Notable changes during the month:
During the month, we made minor adjustments to the overall portfolio with the aim of improve expected risk-adjusted returns. The rebalance involved slightly increasing our exposure to Materials names – such as fertilizer manufacturer Yara International and reducing our exposure to select Industrial names in the waste management sector, like Republic Services and Waste Management that have suffered from falling sentiment scores.