December, 2022
The K2 Select International Fund returned -4.06% for the month outperforming the index by +0.8% in December. Markets were broadly weaker in December following strong gains from the one-year lows in October. A combination of compelling valuations combined with the prospect cash rates will not rise as high as initially anticipated by bond markets were key drivers for the risk on sentiment to help drive equity markets higher from September to early December.
Further, consistent early signs of lower inflation inputs from PMI surveys indicated that the worst of inflation is now behind us. We view 2023 as a less volatile year compared to the previous year. There appears to be more predictability with regard to monetary policy and the slowdown in economic conditions and earnings has been priced in. There will be challenges however the US labour market, households and corporates remain in reasonable condition despite the rapid rise of the Fed Funds target rate to 4.25%-4.5%. There is a degree of resilience to the world's largest economy which will position their economy well to deal with the earnings and economic downgrades later this year. Looking through 2023 we believe current valuations remain reasonable.
A Fed Funds target rate of 5%-5.25% is our core view with a low in the earnings cycle in the September quarter. The opening up of the China economy following years of persistent lockdowns will be a net positive for global growth this year. New Investment Manager appointment: On 9 January 2023 the board of K2 Asset Management Ltd (K2) announced a partnership with GAM International Ltd (GAM) to take on the role of investment manager of the K2 Select International Absolute Return Fund. With over 35 years' experience GAM is an active, independent global manager that is headquartered in Zurich with offices across 14 countries and collectively manage over AUD 100 billion in assets. This is an exciting opportunity, and we are pleased to be able to partner with such a large global and high-quality manager that has delivered a strong track record. Facilitating successful best-of-breed global managers for this fund ultimately benefits Australian investors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-arf-final_1673927162.pdfNovember, 2022
The K2 Select International Fund returned +6.86% for the month outperforming the index by 4.0% in November. The strong risk on market sentiment that began in early October continued through to month-end. There have been a number of leading indicators that have been supportive for markets which have rallied strongly from the recent lows. Peaking US bond yields combined with some lower partial inflation inputs have generally been positive for risk assets. The recent market rally needs to be put in context as performance year to date has been very volatile following the most aggressive US Fed interest rate hike cycle since the early 1980's. Further, there will be some lagged effects impacting the economy well into next year. The tighter monetary policy has been effective. There have been clear signs of demand destruction in the US economy following the aggressive rate hike cycle combined with Quantitative Tightening (QT).
Earnings have been downgraded over the year in line with lower growth pulse. Despite the earning pressure some sectors have performed well. This includes energy, financials and industrials. For the year ahead it is anticipated that the pace of aggregate earnings downgrades will slow. Looking forward, signs of economic slowdown will continue to be viewed as positive news for markets as this suggests cash rate reaching their peak for the cycle. The Fed commentary however will remain hawkish. This will be at odds with softening signs of economic activity. The Fed simply needs to be convinced the inflation threat is addressed. Despite their commentary bond markets are beginning to price in a 5.25%-5.5% Fed Funds Rate and the long bond yields are already starting to fall from their highs earlier this year. The cure inversion is currently suggesting that the tough Fed narrative of further rate hikes may not eventuate. The slow opening of the economy in China will be a key contribution for global growth in 2023.
The best form of stimulus is simply allowing economies to reopen. This should lead to the long repair in the very weak consumer and business sentiment in China following such aggressive lock down polices. In Europe, the economic challenges remain amplified. The portfolio cash position is 3% at month-end compared to 15% in the June quarter. We continue maintain underweights to emerging markets and the EU region. Some of the best performing holdings for the Fund in November include BHP, Rio, Judo Capital, Macquarie and Glencore.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-arf-final_1670810878.pdfOctober, 2022
The K2 Select International Fund returned +3.56% for the month.
Some risk appetite began to re surface in October from global investors. However, it has been undeniably a volatile year to date as markets have continued to adjust to the persistent robust pace of tighter monetary policy. The recent US quarterly reporting period illustrated that US earnings have been resilient but slowing. Further, various partial economic indicators have clearly exhibited a slower economic pulse compared to the previous quarter and earlier this year when the US economy was growing at a rapid pace following two years of stimulus. The notable spike in inflation data over the past year has reinforced the dilemma central banks face. The momentum of Fed Rate hikes has been the quickest in over a generation.
The current US rate hike pace is well ahead of the comparable inflation risk periods of 1994 and 1983, which reinforces the inflation concern from the Fed Chair Powell. The jumbo 0.75% rate increases have continued this year taking the Fed Funds Rate to 3.25% (upper band) from near zero earlier this year. In the early Nov Fed Meeting rates are expected to move another 0.75% to take the effective Fed Funds Rate to 4%. We view that a 4.75%-5% Fed Funds Rate would be an appropriate pause level and this would be positive for markets. Combined with the Quantitative Tightening (QT) the Fed has engineered a very aggressive restrictive monetary policy to address inflation. The demand destruction in the most robust global economy has started to show. At the margin, this adds some more predictability that we may be approaching a pause in rate hikes soon.
This should lead to the USD strength pausing which will be a relief for many emerging economies. The portfolio cash position is 4% at month-end compared to 15% in the June quarter. We continue maintain underweights to emerging markets and the EU region. Some of the best performing holdings for the Fund in October include Stanmore Resources, Netflix, Macquarie and Kina Securities.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-arf-final_1667968696.pdfSeptember, 2022
The K2 Select International Fund returned -8.79% for the month in another volatile month. Global equity markets have had a difficult year.
Markets remain volatile and the uncertainty persists. The US Fed increased the Fed Funds rate by a further 75 basis points at the FOMC Meeting in late September. This now takes the rate to a restrictive 3%-3.25% target (lower and upper band). Interestingly the pace of US rate hikes in the current cycle have now increased at a faster pace compared to the previous aggressive rate hike periods of 1994 (Greenspan) and 1983 (Volker) periods. The commentary from the Fed Chair have continued to reinforce their hawkish comments. This remains a challenge for investor sentiment. The pace of the slowdown year-to-date to address inflation risks has been painful and felt by the market performance including defensive asset classes such as fixed income. In addition to the US interest rate hike, restrictive quantitative tightening (QT) is also underway effectively slowing credit growth and contracting the money supply.
Further, the strength of the USD this year vs all currencies assists the Fed as a strengthening currency is less inflationary for the economy. However, the strength of the USD has acted as a wrecking ball delivering plenty of economic pain for many economies, including emerging economies with USD liabilities. Inflation risks look set to persist despite the view that peak inflation is behind us Getting core inflation back towards the 2%-3% targets in many western economies remains a challenge. Pricing in rate cuts remains pre-mature and the record low "near zero" rate settings of the recent past will not return anytime soon.
Despite the many challenges, there are some positives that indicate the economy can absorb the painful monetary setting although some sectors and households will be impacted more than others. Aggregate corporate earnings and credit conditions remain positive, household savings remain high (but falling) and the labour market remains robust. The outlook will however remain uncertain. Hence valuations remain compelling. The portfolio cash position is lower at around 2% at month-end compared to 15% last quarter. Some of the best performing holdings for the Fund in the September quarter include Netflix, Summerset, Stanmore Resources, Cohen & Steers and US Bancorp.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-arf-final_1665372024.pdfAugust, 2022
The K2 Select International Fund returned -2.2% for the month. Financial markets continue to exhibit ongoing volatility due in part to some uncertainty with monetary policy settings going forward.
The direction of interest rate settings and the ongoing quantitative tightening (QT) in the US has some obvious implications for valuations and investor sentiment. Markets are always searching for additional clarity. The commentary and guidance from the Federal Reserve needs to be reconciled with the underlying economic data to better understand future policy settings and risks. As inflation pressures persist, market expectations are for the Fed to raise rates by a further 75 basis points at the upcoming FOMC Meeting in late September. This will take the Fed Funds Rate to restrictive range at 3.25% (upper bound target) from the current 2.5%. While it is reasonable to suggest that peak inflation is behind us, getting core inflation back towards the 2%-3% targets in many western economies looks some way off. Inflation may be falling in the year ahead however it looks likely it will remain elevated compared to long run averages. This suggests that cash rates will be restrictive for a short period ahead and investors will need to be comfortable that markets will not see sub 2% cash rates anytime soon.
The ultra-low near zero rate settings of the recent past will be viewed going forward as sub-optimal policy with the benefit of hindsight. Despite the higher rate outlook, aggregate corporate earnings and credit conditions remain positive (but slowing), household savings remain high (however falling from cycle highs) and the labour market remains strong. The uncertainty remains going forward however we anticipate cash rates to peak by year-end. This should be supportive for the economy and earnings outlook. Further, valuations remain compelling and are set to remain so until there is further clarity on the interest rate front. The K2 Select International Fund continues to have a USD exposure currency hedge in place which will benefit from a rising AUD. The portfolio cash position is lower at 6.3% at month-end compared to 15% a month earlier as we take advantage of compelling valuations in August to reinvest additional cash. Some of the best performing holdings for the Fund this month were PeopleIn, Macquarie Group, News Corp, Ryman Health and Netflix
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-arf-final_1662707000.pdfJuly, 2022
The K2 Select International Fund returned +5.0% for the month. The market recovery was a function of a number of different factors. The additional confirmation of good US earnings, reasonable underlying economic conditions combined with cheap valuations, all helped improve investor sentiment. Looking forward, there will continue to be some ongoing uncertainty with regard to the pace of tighter monetary policy. The monthly flow of economic data will help markets build a better picture of the economic and therefore earnings momentum. Despite the tighter monetary policy by developed market central banks globally, the pace of earnings growth and the tight labour market remain robust.
They do not exhibit recessionary levels as some other indicators suggest. The ongoing uncertainty for markets regarding the pace of US rate hikes will remain as markets look for some confirmation on lower inflation expectations. It would be reasonable to conclude that we are close to peak inflation. This is a positive for market sentiment going forward. The pace of rate hikes from the US Fed has been robust year to date as they have signalled to the market the need to address inflation expectations and slow down the robust momentum of the US economy. The Fed Funds rate is anticipated to approach 3.5% by year-end and each Fed Fund move will be data dependent. The Fed is no longer behind the curve and price stability is their primary focus. There are a number of underlying positives. Credit conditions, corporate balance sheets, tight labour market, lower energy prices and household savings in the key developed economies remain in good aggregate condition. This was confirmed with some recent economic data and quarterly earnings. Some key risks are the elevated geo-political concerns between China and the west, uncertainty of peak inflation, ongoing supply chain disruptions and corporate costs.
The K2 Select International Fund continues to have a USD exposure currency hedge in place which will benefit from a rising AUD. We view the peak USD strength in the June quarter is the peak in the cycle. The portfolio cash position was 15% reflecting a cautiously optimistic outlook. Some of our largest weightings include Microsoft, VISA, Macquarie, Rio, Toronto Dominion Bank and JP Morgan. Some of the best performing holdings for the Fund this month were MA Financial, Microsoft, Macquarie, VISA, Summerset Group and Netflix
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-arf-final_1660536206.pdfJune, 2022
In a volatile global equity market in June, the K2 Select International Fund returned -11.91% for the month. The first half 2022 performance in global equities was one of the worse in many decades as markets continued to adjust to the uncertainty with regard to the pace of tighter monetary policy combined with slowing economic momentum.
The US Fed has increasingly signalled to the market the need to increase rates rapidly from the historical lows seen in 2021. The aim for the Fed is to create the required capacity within the economy to address inflation concerns without going into recession. Price stability is their primary focus as the alternative is sub-optimal. The heightened uncertainty for markets year-to-date remains primarily with the slowing economic pulse, rising inflation expectations and the aggressive forecasts of higher US cash rates. The subsequent increase in market volatility and the prospect of a US recession has weighed on sentiment whereby valuations have now become very compelling compared to long-run historical benchmarks. The discount to the price of future earnings has been very aggressive this year and we believe this is overdone. Going forward, we look for the upcoming US quarterly reporting season in July to confirm the pace of the earnings slowdown.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-arf-final_1658103686.pdfApril, 2022
The K2 Select International Fund returned -3.0% for the month. April was a volatile month for global equity markets.
The increased currency volatility and fall in the AUD late April reinforced market uncertainty with US policy settings. We continue to take the view that support for commodities will remain into year end and subsequent strength in commodity currencies will result. The Fund maintains a hedging strategy that provides some capital protection against a rising AUD.
Uncertainty for markets continued due to ongoing concerns with rising inflation expectations and the implications for US rates. Central bank communication is important for markets and the US Fed has continued to reinforce tighter monetary policy settings ahead from the recent historical lows in rates. This follows their policy pivot in late 2021 as inflation risks continued to build.
The Fed increased rates by 50 basis points to 1.0% (upper band) at their May meeting and flagged to the market that additional 50 basis point rates hikes at their upcoming June and July meetings should be anticipated. A 2.5% Fed Funds rate is the neutral long-term target and would be conducive for stable markets going forward. Getting there within a year will create some pain for markets. In addition to higher US rates, the Quantitative Tightening (QT) will also have an impact for global markets. While addressing inflation risks the US Fed ultimately aims to engineer a soft economic landing.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-arf-final_1652674395.pdfMarch, 2022
The K2 Select International Fund returned +1.13% for the month outperforming the index by +2.5%. The index was -1.4% for the month. The AUD strength contributed to the performance. The recent strength in commodity currencies has been supportive for the AUD. The Fund maintains a hedging strategy that provides some capital protection against a rising AUD. Markets globally continue to adjust to the expectation of additional rate hikes from the US Fed to address the persistent inflation concerns. In addition to the higher US cash rate outlook, the long overdue start to Quantitative Tightening (QT) has begun. The US Fed ultimately aims to engineer a soft economic landing while balancing the various risks.
The positives include the current economic and earnings momentum remaining above long run historical benchmarks (although slowing), compelling equity valuations, sound corporate credit conditions, high household savings rates and the strong labour market in developed economies. The strong wealth effects create some comfort for policy makers that the tighter monetary policy can be absorbed. Further, in the early rate hike stage of the economic cycle, equity earnings (in aggregate) and commodities tend to benefit.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-arf-final_1649896654.pdfFebruary, 2022
The K2 Select International Fund returned -3.7% for the month outperforming the index by +1.4%. The index was -5.1% for the month. The AUD strength contributed to the performance. The Fund maintains a hedging strategy that provides some capital protection against a rising AUD. Global equity markets continued to remain volatile during the month. The market is adjusting to the upcoming interest rate rise in March by the US Federal Reserve (FED), the beginning of the long overdue quantitative tightening (QT) by The Fed, the ongoing inflation concerns and of course the disturbing and unfortunate events in eastern Europe following the invasion of the Ukraine by Russia. The uncertainty for markets and the implications for energy prices are anticipated to persist. For now, these geo-political concerns will dominate headlines and therefore investor and consumer sentiment.
Despite these concerns the economic backdrop ahead of the interest rate rises from The Fed and other key central banks is one of strong aggregate corporate earnings and strong credit conditions for developed market equities. Further, the household savings ratio remains strong in developed economies following two years of persistent fiscal and monetary stimulus. These wealth effects are a strong potential tailwind.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-arf-final_1646962099.pdfJanuary, 2022
The K2 Select International Fund returned -6.81% for the month of January. The fund has delivered +8.91% p.a. return (after all fees) since inception. Following a strong end to 2021, global equity markets started the new year full of renewed optimism. This was quickly short lived as investors fretted about inflation and how central bankers would react. Discount rates were rapidly recalibrated and markets de-rated accordingly. All major regions suffered varying degrees of losses with Materials and Energy the only sector spared. Commodity prices surged during the month. In particular, Iron ore rose 15% on the back of Chinese restocking demand ahead of Chinese New Year and Crude Oil continued to advance on tight supply concerns rising 17%.
Any good economic textbook will tell you that higher interest rates are needed to subdue inflation. However, life in the real world is not so straightforward and central bankers are acutely aware of the economic armageddon that will occur from even a slight increase in rates. While this is no doubt a problem of their own creation through years of loose monetary policy it is becoming increasingly difficult to tame the inflation beast without causing the associated collateral damage. In the US, bond futures are currently pricing four to five hikes in calendar year 2022 which we think is too aggressive.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-arf-final_1644376541.pdfDecember, 2021
The K2 Select International Fund returned +2.78% for the month of December. The fund has delivered +9.41% p.a. return (after all fees) since inception outperforming the benchmark.
After a volatile start to the month the traditional holiday season rally eventually took hold with all major global equity markets ultimately participating in the gains. It wasn't all smooth sailing however as investors were forced to grapple with the potential impact of Omicron and a hawkish pivot from the US Federal Reserve. The market is now pricing three interest rate rises in the US over the course of 2022. With regards to Omicron, initially it was a fear of the unknown causing most angst, but as additional data gradually becomes available that fear is slowly subsiding.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-final_1641856858.pdfNovember, 2021
The K2 Select International Fund returned -3.89% for the month of November. The fund has delivered +9.29% p.a. return (after all fees) since inception. Global equity markets retreated in November with all major regions experiencing declines. After spending the majority of the month in positive territory sentiment rapidly deteriorated in the last few days with the emergence of a new Covid strain combined with an unexpected hawkish shift from the Federal Reserve. Removal of the word "transitory" and potential acceleration of the tapering program came as a shock to investors already grappling with the potential economic impacts of Omicron. With regards to inflation, this month we saw The Dollar Store raise prices by 25% to $1.25, the first price increase since it was founded in 1986. And anecdotally, according to the American Farm Bureau Federation, the average cost of feeding 10 people with turkey and trimming for Thanksgiving dinner has increased by 14% from last year. So, it came as no surprise to us that the concept of transitory inflation has been removed from the Fed lexicon. On the flipside however, right on cue, the threat of border closures and subsequent oil price falls might serve to dampen inflationary expectations in the short term.
A positive contributor to fund performance included global retail giant Costco. Monthly sales growth continues to accelerate, exceeding elevated expectations, driven by food court re-openings and gasoline sales. On the negative side, portfolio holdings leveraged to the re-opening trade declined in a classic case of markets shooting first and asking questions later. While Omicron does represent a bump in road we believe that when the dust settles pent up demand for experiences and travel will lead consumer spending.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-final_1639092714.pdfOctober, 2021
The K2 Select International Fund returned +2.76% for the month, and +14.2% this calendar year. Over the past year performance is +30.48% which is 4.3% ahead of the benchmark (BM). The fund has delivered +9.59% p.a. return (after all fees) since inception. Global equity markets roared back in October with all major regions participating in the gains. After a volatile start to the month investor focus turned to US reporting season which in aggregate exceeded expectations once again. The market obsession with inflation shows no signs of abating as the world slowly becomes more comfortable with its persistence. This had led to an increase in yields on shorter-term bonds to reflect the potential for interest rate hikes starting in 2022. What impact this will have on future economic growth remains unknown however as the world continues to emerge from its Covid induced hibernation we expect consumer sentiment, buoyed by record levels of household savings, to remain elevated.
The wildcard is China. Despite local equity markets having stabilised, the threat of further regulation still exists. In addition, to the goal of achieving common prosperity and the associated casualties, it would appear that the Chinese authorities are orchestrating a slowdown with the intention of reducing pollution in preparation for the Beijing winter Olympics in February next year. Much like Russia and Sochi, with the eyes of the world looking on there is no room for error. Once completed and the torch officially handed over to Italy, the necessary clean air (pardon the pun) should exist for a swift re-acceleration of economic activity.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-final_1636428256.pdfSeptember, 2021
The K2 Select International Fund returned -3.37% for the month, +11.1% this calendar year and +23.28% over the past year. The combination of good stock selection and the accumulation of the AUD at lower levels in 2020 have all contributed to the strong performance. Global equity markets declined in September as investors battled fires on a number of fronts. Ranging from the threat of more permanent inflation to the potential default of one of China's larger property developers. Following the FOMC meeting towards the end of the month, Chairman Powell once again re-iterated his timetable for tapering and unwillingness to raise interest rates in the short term. Despite no real new news being delivered the delayed reaction from bond markets caught investors by surprise. Yields on US 10-year bonds added a quick 20 basis points to end the month at 1.49%. This put immediate pressure on equites with the biggest impact being felt by long duration technology stocks that rely on low discount rates to justify their lofty valuations.
A less transitory inflationary environment is certainly starting to be priced by markets despite unrelenting table thumping to the contrary by the Fed. On one hand lumber and iron ore prices have fallen by -60% and -45% respectively from their peaks. While on the other hand oil continues to grind higher. However, for inflation to be sustained it will need to persist for years. Key indicators that we are closely monitoring include food prices and wage growth.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-int-final_1633647942.pdfAugust, 2021
The K2 Select International Fund returned +3.32% for the month, +15% this calendar year and +27.6% over the past year. The combination of good stock selection and the accumulation of the AUD at lower levels have all contributed to the strong performance. Global equity markets continued to move higher throughout August as investors gained comfort with the Fed's tapering timetable and unwillingness to raise interest rates in the foreseeable future. Chairman Powell's Jackson Hole speech further re-iterated this position.
With the likelihood of "policy error" diminishing, long duration technology stocks who require low discount rates for valuation support were the biggest beneficiaries. In contrast, Asian markets were more mixed as China's policy reset and associated uncertainty around which sectors might be next in the firing line has left investors licking their wounds. The great inflation debate appears to have taken a back seat but that is not to say it has gone away. Despite 10yr bond yields still remaining somewhat subdued at 1.30% indicating that any inflation will most likely be transitory, we believe it is being driven down by international investors who are attracted to yields greater than zero . Positive contributor to fund performance included NZ listed aged care provider Ryman (RYM) and expanding Australian financial services firm MA Financial Group (MAF). MA Financial delivered a strong 1H result; profits were 93% higher than last year which enabled the company to lift full year profit growth guidance to 20-30%. RYM announced an 82% improvement in its 1Q cash receipts and acquired another site in Melbourne. RYM has rapidly established a strong foothold in Melbourne with a landbank of 12 sites. We envisage that over the next 5 years the value of RYM's Melbourne assets will surpass $4 billion.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-int-final_1631077134.pdfJuly, 2021
The K2 Select International Fund returned +1.65% for the month to be up +30.16% over the past year. Global equity markets continued to grind higher throughout July as investors digested another strong reporting season in the US which showed 88% of companies beating on earnings. Forward guidance commentary however was more muted, if provided at all, dampening performance to a small degree. Reassuringly, the US Federal Reserve confirmed their position of no imminent tapering, further signalling their long-term support for markets and the economy. The ongoing debate around inflation appears to be shifting towards the FED's transitory corner as they attempt to define the meaning of the word. US 10yr bond yields closed the month down -24 basis points at 1.22%, potentially telling us that growth might be scarcer in the medium term. We believe it is more of a technical bounce dominated by offshore buyers who are attracted to yields greater than zero.
Hong Kong and mainland Chinese equities significantly lagged their global peers as regulators expand their reach beyond mega-cap technology companies. DIDI, China's version of UBER, along with private education providers felt the full force of authorities concerns leaving investors to speculate who their next target might be. When combined with China's more orthodox approach to monetary policy, markets in the region remain on high alert. We continue to monitor the situation carefully with a view to acquiring high quality companies at attractive prices that have suffered collateral damage.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-int-final_1628465678.pdfJune, 2021
The K2 Select International Fund returned +1.8% for the month to be up +31.8% over the past fiscal year which is ahead of the benchmark (BM). The combination of good stock selection, investing cash early in the recovery and accumulation of the AUD at lower levels have all contributed to the strong performance vs BM, particularly since the severe March 2020 correction.
Global equity markets were broadly higher in June as investors digested the latest musing from the US Federal Reserve and their potential impacts on asset allocation. A tiny shift in rhetoric to indicate that interest rates may increase sooner than expected was enough to send bond yields down and the USD up as perceived less risky assets benefited. Helping to calm investor nerves, Chairman Powell in his speech to congress emphatically stated that rates will not be raised pre-emptively with any increase only happening when there is evidence of actual inflation. The case for transitory inflation largely driven by supply disruptions gained momentum as key food and materials prices such as lumber (-58%), corn (-7%) and Soybeans (-13%) have all declined from their May highs.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-int-final_1625712693.pdfMay, 2021
The K2 Select International Fund returned -0.5% for the month to be up +12.7% over the past six months. The fund has performed strongly over the past year to be +29.13% outperforming the BM by +6.3%. The combination of good stock selection, investing cash early in the recovery and accumulation of the AUD at lower levels have all contributed to the strong performance vs benchmark since the severe March 2020 correction.
The AUD gained +0.29% to 0.7738. The fund is currently 74% hedged to the AUD providing capital protection against a rising AUD.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-int-final_1623225019.pdfDecember, 2020
The strong returns continued in December. The K2 Select International Fund returned +4.8% for the month to be +4.6% ahead of the benchmark (BM). The fund now returned +20.4% this financial year to be +9.0% ahead of the BM. Since the cycle lows in the March correction the fund is up +55.8% outperforming the BM by +27.2%. The combination of good stock selection, investing cash early in the recovery and accumulation of the AUD at lower levels have all contributed to the strong performance vs benchmark since the severe March correction.
Global equities continued their strong performance through December with solid gains across all major regions. US equities finished the year at record highs as investor embraced further fiscal stimulus from Washington. 2020 was a year main street would like to forget but for global investors it was extremely rewarding as even lower interest rates, additional quantitative easing and enormous amounts of fiscal stimulus provided overwhelming support for equities. As we go to print the Democrats appear to have gained control of the US Senate giving them a clean sweep. On one hand this will likely lead to increased taxes and regulation while on the other hand significant fiscal spending is expected. In the medium term this is not necessarily bullish for markets but in the short term further stimulus will provide ongoing support.
The exponential increase in money supply has provided rocket fuel for asset prices. Since mid-March 2020 the Federal Reserve US Money Supply (M2) has risen by +20% which correlates to approximately 41 S&P 500 points for every US$100bn. Recently increased weightings to the Financials sector has continued to benefit the portfolio. Major positive contributors within the sector include Moelis & Co (US) (+19%), Summerset Group Holdings (NZ) (+18%), and Goldman Sachs Group (US) (+14%). The fund also benefited from its long term core Resource holdings with large gains recorded for the month from BHP Group (+11%) driven by the strong rise in iron ore which rallied 30% in December.
The Fund's net exposure currently sits at 93%. The fund remains optimistically positioned as we continue to position the portfolio to benefit from a more reflationary environment as central banks continue unabated to print money to fund government spending. The AUD ended the month up +4.6% versus the USD at 0.7694 extending its rally to +9.5% in the last 2 months. The fund is currently 70% hedged to the AUD providing significant capital protection against a rising AUD.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/select-int-fund-final_1610426295.pdfasset_class: Foreign Equity
asset_category: Long Short
peer_benchmark: Foreign Equity - Long Short Index
broad_market_index: Developed -World Index
manager_contact_details: Array
ticker: ETL0046AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
Monthly Report
fund_features:
K2 Select International Absolute Return aims to deliver superior risk adjusted returns through the investment cycle. Our target return is 10+% p.a. over the long term. The company actively invest in equities when growth opportunities exist to generate positive returns for our clients, and aim to protect these gains when market conditions change.
structure: Managed Fund