Global equity markets were sharply higher in November 2020 as multiple prospects for a safe COVID-19 vaccine appeared on the horizon and US election uncertainty subsided creating a risk-on environment.
SSGA’s Market Risk Indicator (MRI) followed these moves with the signal starting in High Risk Regime but moved significantly lower, following a steep decline in the first days of November, and continuing in a more gradual way in the second half of the month, moving into a Low Risk regime mid-month where it stayed for the rest of the month. Specifically, all three underlying factors moved sharply lower over the month with both the Implied Volatilities on Equities and Risky Debt Spread settling in Low Risk Regime, while the Implied Volatilities on Currency finished in Normal Regime. Economically, incoming data continued to show a robust recovery despite a slowdown in services amid the third wave of infections in the US and Europe. China, too, continued with its strong economic growth recovery. Although uncertainty over the US elections subsided with Joe Biden certain to become the next US president, geo-political tensions between the US and China continued to simmer. Looking forward, we continue to expect strong global economic growth with markets focusing on fundamentals post the US election and positive vaccine news, thus our outlook does remain optimistic.
Within growth assets, local equity markets (S&P/ASX 200 Net Total Return Index) saw strong positive returns, and were up 13.2% for the month. Global equity markets were also positive with the US (MSCI US Net Total Return Local Index) up 11.5%, Europe (MSCI Europe Net Total Return Local Index)
up 13.9% and Japan (MSCI Japan Net Total Return Local index) up 12.2%. Emerging markets (MSCI EM Index Net Total Return Local Index) were also positive, up 9.2% over the month. In the fixed income space, Australian government bond yields were mixed as shorter duration bond yields were flat whilst longer duration yields moved higher over the month. Our exposures to credit with a shorter duration profile, posted positive returns for the month. Across our alternatives exposures, our investments in commodities added to performance but our emerging markets bonds exposure posted marginally negative returns with both negatively affected by a strong Aussie dollar.
Looking into our average positioning across the portfolio for the month of November, the Growth assets allocations have been approximately 51% for the State Street Multi-Asset Builder Fund. Our exposure preferences in November were to have 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 positive return in November.
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References to the State Street Multi-Asset Builder Fund (APIR: SST0052AU), in this document are references to the managed investment schemes domiciled in Australia, promoted by SSGA Australia, in respect of which SSGA, ASL is the Responsible Entity. This general information has been prepared without taking into account your individual objectives, financial situation or needs and you should consider whether it is appropriate for you. You should seek professional advice and consider the product disclosure document, available at www.ssga.com, before deciding whether to acquire or continue to hold units in the Funds.
This material should not be considered a solicitation to apply for interests in the Funds and investors should obtain independent financial and other professional advice before making investment decisions. There is no representation or warranty as to the currency or accuracy of, nor liability for, decisions based on such information.
All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.
Source: Bloomberg Finance, L.P., SSGA as at 30 November 2020. Past performance is not a reliable indicator of future performance. This information should not be considered a recommendation to buy or sell any security or sector shown. It is not known whether the securities or sectors shown will be profitable in the future. Characteristics are as of the date indicated, subject to change, and should not be relied upon as current thereafter. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income.
Investing involves risk including the risk of loss of principal. Risks associated with equity investing include stock values which may fluctuate in response to the activities of individual companies and general market and economic conditions. Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.
Although bonds generally present less short-term risk and volatility risk than stocks, bonds contain interest rate risks; the risk of issuer default; issuer credit risk; liquidity risk; and inflation risk. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Asset Allocation is a method of diversification which positions assets among major investment categories. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. Investments in issuers in different countries are often denominated in different currencies. Changes in the values of those currencies relative to the Strategy’s base currency may have a positive or negative effect on the values of the Portfolio’s investments denominated in those currencies. The Strategy may, but will not necessarily, invest in currency exchange contracts or other currency related transactions (including derivatives transactions) to reduce exposure to different currencies. These contracts may reduce, take or eliminate some or all of the benefit that the Strategy may experience from favorable currency fluctuations.
Investing in commodities entail significant risk and is not appropriate for all investors. Commodities investing entail significant risk as commodity prices can be extremely volatile due to wide range of factors. A few such factors include overall market movements, real or perceived inflationary trends, commodity index volatility, international, economic and political changes, change in interest and currency exchange rates.
Derivative investments may involve risks such as potential illiquidity of the markets and additional risk of loss of principal.
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Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC ("S&P") and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones") and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed by SSGA. The S&P/ASX indices are a product of S&P Dow Jones Indices LLC, and has been licensed by SSGA. The SSGA strategies contained within are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates, and none of S&P Dow Jones Indices LLC, Dow Jones, S&P, nor their respective affiliates make any representation regarding the advisability of investing in such product(s).
MSCI indices are the exclusive property of MSCI Inc. ("MSCI"). MSCI and the MSCI index names are service mark(s) of MSCI or its affiliates and have been licensed for use for certain purposes by State Street Global Advisors ("SSGA"). The financial securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such financial securities. No purchaser, seller or holder of this product, or any other person or entity, should use or refer to any MSCI trade name, trademark or service mark to sponsor, endorse, market or promote this product without first contacting MSCI to determine whether MSCI's permission is required. Under no circumstances may any person or entity claim any affiliation with MSCI without the prior written permission of MSCI.
The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.
The Market Risk Indicator (MRI) is a quantitative framework that attempts to identify the current market risk environment based on forward‐looking market indicators. We believe the factors used, equity implied volatility, currency pairs implied volatility and bond spreads, are good indicators of the current risk environment as they are responsive to real‐time market impacts and in theory should include all current and forward views of those markets. These factors are combined to create a single measure and used to identify one of five risk regimes: Euphoria, Low Risk, Normal, High Risk, and Crisis.
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