Global equity markets were negative in October 2020 as a risk off environment took hold. SSGA’s Market Risk Indicator (MRI), while indicating a normal market risk environment for most of the month did increase and reach high risk by month-end as investors began worrying about stalling US fiscal stimulus, stretched valuations, rising infection rates and uncertainty associated with the US elections. Both equity and currency markets saw increased levels of risk aversion both ending the month in High Risk, while risky debt spreads trended lower over the month but remained in Normal risk range.
COVID-19 cases increased further in the US and surged sharply in key European economies such as the United Kingdom, France and Italy. However, the economic impact is expected to be more muted relative to earlier lockdowns with global economies having evolved to cope with their impact. Looking forward, we expect strong global economic growth to continue with markets focusing on fundamentals post the US election, thus our outlook does remain optimistic.
Within growth assets, local equity markets (S&P/ASX 200 Index – Net Total Return) saw positive returns, bucking the global trend, and were up 1.9% for the month. Global equity markets were negative with the US (MSCI US Index – Net Total Return Local) down -2.6%, Europe (MSCI Europe Index – Net Total Return Local) down -5.3% and Japan (MSCI Japan Index – Net Total Return Local) also down -2.5%. Emerging markets (MSCI EM Index – Net Total Return Local), managed to post positive returns up 2.1% outperforming developed markets. In the fixed income space, Australian government bond yields were mixed, as shorter duration bond yields declined whilst longer duration yields moved marginally higher after moving materially lower in September. Our exposures to credit with a shorter duration profile, posted positive returns for the month. Across our alternatives exposures, our investments in commodities detracted from performance but our emerging markets bonds exposure posted positive returns with both benefiting from a weak Australian dollar.
Looking into our average positioning across the portfolio for the month of October, the Growth assets allocations have been approximately 40% for the State Street Multi-Asset Builder Fund. Our exposure preferences in October were to have a diversified exposure to equities, fixed income, alternatives and cash as we balanced the strong momentum in equities versus the uncertainty in the economic outlook heading into the US election. Performance wise, our diversified exposures across equities, fixed income and alternatives resulted in the portfolio delivering a positive return in October.
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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 31 October 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.
Bloomberg Finance L.P. and its affiliates (collectively, “Bloomberg”) do not approve or endorse this material and disclaim all liability for any loss or damage of any kind arising out of the use of all or any part of this material.
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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