Fund Update – September 2020

State Street Global Equity Fund


Global markets retreated through September 2020, led by cyclical sectors. Cyclicals underperformed on lower growth expectations and a retracement in large cap US tech names. A higher USD and the less optimistic growth outlook saw oil prices fall modestly, causing a severe retracement in Energy. Elsewhere, Communication Services, Financials and IT also fell. The AUD
fell 2.3c to US$0.72, partly due to a fall in iron ore prices and general risk-off sentiment in markets.

While stock selection added value during the month, the State Street Global Equity Fund underperformed after impacts of currency hedging. From a sector perspective, good stock picking within Communication Services and Consumer Discretionary were the key contributors towards relative performance. This was partially offset by negative stock selection within
Materials and our lower than benchmark weight in Industrials. Currency hedging lost -1.6% and was the single biggest detractor from relative performance.

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.