Fund Update - October 2020

State Street Multi-Asset Builder Fund


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.