Fund Update – January 2021

State Street Multi-Asset Builder Fund

Global equity markets experienced uncertainty over January 2021 as risky assets rallied over the first two weeks of the month buoyed by the clarity of the US election, but by the middle of the month reversed direction as markets saw concerns surrounding mutations of COVID-19 and complexities related to the vaccine rollout. COVID-19 infections did slow in the US and Europe amid strict lockdowns, but case numbers continued to remain high in key economies such as the UK, France and Italy. In China, new cases were registered in northern provinces leading to tighter restrictions extending up to the lunar year season. 

SSGA’s Market Risk Indicator (MRI) was largely consistent with these moves over the month and finished January 2021 in Low Risk Regime. The signal started in Low Risk Regime and gradually moved lower for most of the month but spiked in the last few days of January, consistent with the sell-off in equities towards the end of the month. On the economic front, economic momentum slowed in the United States and Europe owing to higher infection rates caused by virus mutation and complexities related to the vaccine rollout. Despite these risks, continued monetary and fiscal policy support as well as an expected pick up in vaccination efforts provided robust support for the recovery process. Manufacturing and exports continued to lead the growth recovery in China albeit new COVID-19 outbreaks posing risks to this momentum. Looking forward, we continue to expect a strong global economic recovery as the vaccine is implemented globally, thus our outlook remains optimistic. 

Within growth assets, local equity markets (S&P/ASX 200 Net Total Return Index) saw positive returns, and were up 0.3% for the month. Global equity markets were largely negative with the US (MSCI US Net Total Return Local Index) down -1.0%, Europe (MSCI Europe Net Total Return Local Index) down -1.0% but Japan (MSCI Japan Net Total Return Local Index) posted a positive 0.4% return. Emerging markets (MSCI EM Index Net Total Return Local Index) posted another strong return, up 3.8% over the month. In the fixed income space, Australian government bond yields were again mixed as shorter duration bond yields were flat whilst longer duration yields continued their move higher over the month. Our exposures to credit with a shorter duration profile, posted marginally positive returns for the month. Across our alternatives exposures, our investments in commodities added strongly to performance but our emerging markets bonds exposure posted negative returns, with both positively affected by a weaker Aussie dollar.

Looking into our average positioning across the portfolio for the month of January, the Growth assets allocations have been approximately 69% for the State Street Multi-Asset Builder Fund. Our exposure preferences in January were an overweight exposure to equities but we maintained a diversified exposure to fixed income, alternatives and cash across the remainder of the portfolio. Performance wise, our diversified exposures across equities, fixed income and alternatives resulted in the portfolio delivering a marginally negative return in January.