October, 2020
The Fund underperformed the benchmark over the month of October. Active positioning contributed negatively to returns in October. Portfolios started the month positioned with overweights in a range of under-valued equity markets, a volatility carry position in VIX futures, plus overweights to S&P-500 and STOXX® Europe 600 ESG-X in equity trend-following, partially offset by an underweights in Dow Jones and ASX-200 while being meaningfully protected via options. Fixed income positions were mostly relative value in nature, with a small short bias. In commodities we held long positions in copper and gold.
In equities, our active positioning driven by valuation insights held overweight positions in Mexico’s Bolsa, a long position in the futures of EURO STOXX 50 dividends paid in the calendar year 2024 and FTSE 100 dividends paid in the calendar year 2023 and overweights to both global and Australian listed property, all of which screened amongst the most under-valued markets in the universe which we monitor. The portfolio was long volatility carry through VIX futures. On the other side we held a short position in Dow Jones, as US large cap equities trade materially expensive, however this was switched from Dow Jones to S&P-500 towards the end of the month, netting off against the trend-based S&P overweight, as the S&P-500 moved to be considerably more expensive than the Dow Jones. These mostly overweight positions are meaningfully hedged by an option strategy to protect against possible downside in Australian equities, which consists of buying a put spread, funded by selling an out-of-the money call option, all with an expiry in December: beyond the US presidential election and the associated event risk.
Attractive features of this hedging strategy are that the net premium cost was approximately zero and that the strike price of the sold call option is where we expected to be reducing exposure to Australian equities on a valuation basis at the time the trade was initiated. Our trend-following process held overweights to STOXX® Europe 600 ESG-X and S&P-500 and an underweight to S&P/ASX-200 during October. At the end of the month, the underweight ASX was closed and the STOXX® Europe 600 ESG-X trend switched from overweight to underweight, the combination of which slightly reduced the portfolio’s overweight to growth assets. In fixed income, the portfolio was slightly short with modest overweights in Australian and Canadian 10-year bonds more than offset by underweights in German Bunds, US 10-year Notes and UK Gilts. We took profit on half of the Australian “3s-10s curve flattener” (which holds a long position in 10-year bond futures combined with a larger notional short position in 3-year bond futures), later adding a flattener in the 10- vs 20-year part of the curve. At the end of the month, the trend models re-initiated the overweight to German Bunds. In commodities, the portfolio was long copper and gold and short Brent crude oil. Our active positioning at the start of November remains risk-on but slightly less so than the prior month. The portfolio is positioned with overweights in a range of under-valued equity markets, long volatility carry, underweight STOXX® Europe 600 ESG-X in equity trend-following while being meaningfully protected via options. Fixed income positions are relative value in nature. In commodities, we hold long positions in copper and gold
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/160759811.pdfasset_class: Multi-Asset
asset_category: 61-80% Growth Assets - Diversified
peer_benchmark: Multi-Asset - 61-80% Diversified Index
broad_market_index: Multi-Asset Growth Investor Index
manager_contact_details: Array
ticker: BTA0122AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://investmentcentre.moneymanagement.com.au/factsheets/mi/ltb5/pendal-sustainable-balanced
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fund_features:
Pendal Sustainable Balanced Fund aims to provide a return (before fees and expenses) that exceeds the Fund’s benchmark over the medium to long term. The suggested investment timeframe is five years or more. The Fund is designed for investors who want the potential for long term capital growth and income, diversification across a broad range of asset classes and exposure to companies and issuers (within the Fund’s Australian and international shares and Australian and international fixed interest allocation) that demonstrate leading environmental, social and corporate governance (ESG) and ethical practices while avoiding exposure to companies and issuers with material involvement in activities we consider to negatively impact the environment or society and are prepared to accept some variability of returns.
- Invests in Australian and international shares, Australian and international property securities, Australian and international fixed interest, cash and alternative investments.
- Derivatives may be used.
- The Fund has a higher weighting towards growth assets than defensive assets.
structure: Managed Fund