September, 2023
Markets were weaker again in September, with stronger than expected economic data pushing bond yields higher. By contrast, the economic news from China continued to be weak. This saw the S&P500 fall -4.9%, the NASDAQ decline -5.8%, and the Nikkei 225 give back -2.3%. The FTSE100 bucked the trend, rising +2.3% as inflation data in the UK came in lower than expected. After a sharp fall last month, the Shanghai composite was relatively stable, down only - 0.3%, as a number of additional stimulus measures were put in place over the month.
The Australian market was also weak, with the ASX300 Accumulation Index finishing the month down -2.9%. The domestic economic data remains strong, and inflation continues to ease, allowing the RBA to remain on hold at its September meeting. However, we would caution that this data is backward looking, and given the long lags in the transmission of monetary policy, the impact of previous rate increases is still yet to be fully felt on the real economy.
Energy (+2.2%) was the only sector to deliver a positive return in September, as production cuts by OPEC+ combined with strong demand to see the oil price rise to over US$87/bl. Metals and Mining (-1.4%) outperformed as the iron ore price remained resilient, despite the China weakness. Financials (-1.6%) also outperformed in a relative sense, with signs of an easing in mortgage competition supporting the banks. Interest rate sensitive sectors underperformed as bond yields rose, with REITs (8.7%), IT (-7.7%) and Healthcare (-6.4%), the worst performing sectors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0923_Wholesale_PVAST.pdfAugust, 2023
Markets were generally softer in August, with good economic news in the US being interpreted as bad for equities as it suggested rates will remain higher for longer. At the same time, bad economic news in China was interpreted as also being bad for equities, as what has been the main engine of global growth continued to splutter. This saw the S&P500 fall -1.8% and the NASDAQ decline -2.2%, while the FTSE100 fell -3.4% and the Nikkei 225 gave back -1.7%. The continuing weak Chinese data, and renewed concerns over the property market, saw the Shanghai composite fall -5.2%.
After selling off in the early part of the month, the Australian market staged a late recovery, with the ASX300 Accumulation Index finishing the month down only -0.8%. Reporting season was the highlight of the month. Many of the more cyclical stocks delivered better than feared results, while many of the defensives disappointed. Overall, results were sound, and highlighted that the economy continues to perform strongly. The RBA remained on hold at its August meeting, and inflation continued to ease. Retail sales bounced, house prices continued to rise, and employment remained strong.
The better than feared results from consumer-facing stocks saw Consumer Discretionary (+5.8%) the best performing sector for the month, followed by REITs (+2.2%), which also experienced a relief rally. Energy (+0.7%) also outperformed. By contrast, Metals and Mining (-2.5%) underperformed, weighed down by the negative China sentiment and generally softer commodity prices. Consumer Staples (-3.1%) were also softer as investors rotated towards more discretionary exposures.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0823_Wholesale_PVAST.pdfJuly, 2023
After selling off in the earlier part of the month, markets staged a strong recovery to finish up strongly. While most central banks raised rates in July, improving inflation data supported the view that we are close to the end of the tightening cycle. At the same time, ongoing healthy economic data gave rise to optimism that a soft landing may be achievable. This saw the S&P500 gain +3.1%, the NASDAQ rally +4.0% and the FTSE100 rise +2.2%. Despite Chinese economic data continuing to be weak, the Shanghai composite added +2.8% on hopes of further stimulus measures. By contrast, the Nikkei 225 eased -0.1%, following its very strong recent performance.
The Australian market was also strong, with the ASX300 Accumulation Index finishing the month up +2.9%. The market reacted positively as the RBA paused its rate increases, leaving the cash rate unchanged at 4.1% in July. As in other markets, there are clear signs that inflation has peaked, while economic data remains robust, with key measures such as employment, spending and house prices remaining resilient. However, we would caution that this data is backward looking and given the long lags in the transmission of monetary policy, the impact of previous rate increases is still yet to fully felt on the real economy.
Energy (+8.4%) was the best performing sector, with the oil price rallying on OPEC+ production cuts and the improving global outlook. Easing inflation and interest rate expectations also saw Financials (+4.9%), IT (+4.8%), Utilities (+4.0%) and REITs (+3.9%) outperform.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0723_Wholesale_PVAST.pdfJune, 2023
Markets were strong in June, with improving inflation trends and a pause by the Fed, seeing a broadening of the rally in US equities from the Tech sector to other parts of the market. The NASDAQ added +6.6%, while the S&P500 rallied +6.5% on stronger economic data and the hope that the rate rise cycle is over, despite Jerome Powell saying that more rate rises are expected. The Nikkei 225 rose +7.5%, while the FTSE 100 was up a more modest +1.1%. The exception was the Shanghai Composite, which eased -0.1%, on concerns over the faltering Chinese post-COVID recovery.
The Australian market was also strong, with the ASX300 Accumulation Index finishing the month up +1.7%. Despite the RBA lifting the cash rate again, investors took a positive stance as inflation eased and economic data remained robust, with retail sales rebounding, house prices rising and very strong jobs growth in May. However, we would caution that this data is backward looking, and the impact of previous rate increases is still yet to be fully felt. While the economy is proving very resilient, some cracks are starting to appear, with several retailers issuing profit downgrades and building approvals falling sharply.
Metals and Mining (+5.0%) was the best performing sector, with commodity prices generally higher over the month, despite the Chinese growth concerns. Financials (+3.1%) also outperformed, as the major banks found some support. Defensive sectors were weaker as sentiment turned more positive on the economic outlook.
Healthcare (-6.4%) was the man detractor, led lower by CSL, while Telcos and REITs also underperformed.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0623_Wholesale_PVAST.pdfMay, 2023
During the month we took profits and trimmed our holdings in Tabcorp, United Malt and Newcrest. Proceeds were used to increase our holdings in the Resources and Energy sectors following their being sold off. At month end, stock numbers were 53 and cash was 4.2%.
The Trust delivered -2.7%, after-fees in May, underperforming the benchmark by -0.2%. Key positive contributors to performance included Telix Pharmaceuticals (+15.3%), which added to its very strong performance in April.
James Hardie (+13.1%) was also stronger, with indications that the US housing market has stabilised after being impacted by the rapid rise in mortgage rates. James Hardie is primarily exposed to the renovation, as opposed to new construction market, however, it has still been impacted by the current slowdown. While the company is subject to the cycle, over time it has consistently outgrown the overall market as its premium, differentiated products take share from other building materials. Management continue to focus on investing in the brand and distribution channels and we expect this to continue to drive double-digit earnings growth over the medium term.
Healthcare stocks were stronger during the month, with Integral Diagnostics and Healius (both +5.7%) outperforming as industry data showed that patient volumes were recovering from COVID disruptions. CSL (+1.9%) also outperformed, with plasma collections having rebounded to above pre-COVID levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0523_Wholesale_PVAST-1.pdfApril, 2023
Further indications that inflation has peaked, combined with the banking sector issues apparently abating, saw markets trade positively in April. Key global indices rose, with the S&P500 +1.5%, the FTSE100 +3.1%, the Nikkei 225 +2.9%, the Shanghai Composite +1.5% and the NASDAQ +0.4%.
The decision by the RBA to pause its rate rises at the April meeting lifted sentiment and boosted the Australian market, which returned +1.8% for the month. The prospect of interest rates having peaked saw a relief rally in those sectors most leveraged to bond yields, with REITs (+5.2%) and IT (+4.5%) the best performing sectors over the month. The rally was broad-based, with Australian economic data remaining strong.
The unemployment rate continues to be at record lows and consumer spending remains robust. Further, the housing market appears to have stabilised, with prices showing modest gains in March and April. This was very positive for sentiment, with housing being a key underpinning of the economy. Metals & Mining (-3.2%) was the only sector to deliver a negative return in April, as commodity prices weakened on concerns over slowing Chinese growth.
File:March, 2023
Further indications that inflation has peaked, combined with the banking sector issues apparently abating, saw markets trade positively in April. Key global indices rose, with the S&P500 +1.5%, the FTSE100 +3.1%, the Nikkei 225 +2.9%, the Shanghai Composite +1.5% and the NASDAQ +0.4%. The decision by the RBA to pause its rate rises at the April meeting lifted sentiment and boosted the Australian market, which returned +1.8% for the month. The prospect of interest rates having peaked saw a relief rally in those sectors most leveraged to bond yields, with REITs (+5.2%) and IT (+4.5%) the best performing sectors over the month. The rally was broad-based, with Australian economic data remaining strong. The unemployment rate continues to be at record lows and consumer spending remains robust. Further, the housing market appears to have stabilised, with prices showing modest gains in March and April. This was very positive for sentiment, with housing being a key underpinning of the economy. Metals & Mining (-3.2%) was the only sector to deliver a negative return in April, as commodity prices weakened on concerns over slowing Chinese growth.
File:February, 2023
The Trust returned -2.0%, after-fees in February, outperforming the benchmark by +0.5%. The market continues to oscillate between optimism that inflation has peaked, meaning that the interest rate increases are close to an end, and pessimism that inflation will prove persistent and that rate rises have a way to go yet. On this front, n y’s optimism gave way to pessimism, as strong economic data suggested that Central Banks have more work to do. The reporting season was the highlight of the month in the domestic market. For the past several reporting periods, results have come in slightly ahead of market expectations, with the stronger than expected economic backdrop providing good support to corporate earnings.
This period, however, while results were solid, overall they came in slightly below market expectations, with the first signs of slowing starting to appear. While revenue growth was stronger than expectations, margins are beginning to be pressured by rising input costs and guidance indicated that consumer spending has eased in the early part of this year. Key positive contributors to performance included packaging company, Orora (+18.5%), which delivered a solid result and reiterated full-year guidance. The market had been concerned that its US business would be experiencing some weakness, however, this has proven not to be the case.
Their Australian operations also continue to perform well and have baked-in growth from capacity expansions in their can business, which are due to come online shortly. This expanded capacity has been pre-sold to existing customers under long-term contracts, locking in the necessary return on investment. Orora is a major supplier of wine bottles and there is further upside to this business should the thaw in relations see Chinese wine tariffs removed, as this would significantly increase export volumes and demand for bottles. Orora has many attractive attributes in the current market, with relatively defensive earnings and low risk organic growth, combined with strong management and an attractive valuation.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0223_Wholesale_PVAST.pdfJanuary, 2023
Early signs of easing inflationary pressures, slightly better economic growth forecasts and a faster than expected reopening of China, combined to boost investor sentiment in January. Markets rallied on hopes that we may be nearing the end of the global interest rate tightening cycle and that a soft landing may be able to be achieved, with inflation falling without a significant increase in unemployment. Time will tell if this is the case. This saw all major global markets finish sharply higher in January.
The more rate sensitive NASDAQ led the way, rising +10.7%, while the broader S&P500 finished the month up +6.2%. The FTSE100 rose +4.3%, while the Nikkei 225 gained +4.7%. The Shanghai Composite rose +5.4% as the economy reopened following the sudden abandonment of zero-COVD polices. Following this about face, the extremely rapid spread of infections across the country suggests that normalisation of activity levels will occur rapidly, giving a strong pick up in growth over 2023. The Australian market was also strong in January, with the ASX300 Accumulation Index finishing the month up +6.3%. All sectors, other than Utilities (-3.0%) delivered positive returns. The prospect of a soft landing, saw Consumer Discretionary (+10.1%) the best performing sector, while the rapid reopening of China, saw the Metals & Mining sector (+9.4%) again perform strongly. The REIT sector (+8.1%) saw a relief rally on the hopes of bond yields peaking.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0123_Wholesale_PVAST.pdfDecember, 2022
Markets ended the year on a soft note, with persistently high inflation and hawkish commentary, dashing hopes that Central Banks would pivot to a more accommodative stance and towards monetary tightening. This saw all major global markets finish the month lower, reversing much of the previous month’s gains. The S&P500 finished down -5.7%, while the NASDAQ fell -8.6%, on a heavy tech sell-off. The FTSE100 declined by -1.6%, while the Nikkei 225 shed -6.7%, as the Bank of Japan allowed long-term bond yields to increase. On the positive, the Chinese Government has moved far more quickly than expected in abandoning its COVID zero policy, removing restrictions on the population and reopening borders. While the Shanghai Composite still had a negative return of -2.0%, this followed a very strong +8.9% rally in November. This likely reflects the fact that, while the removal of restrictions will lead to an economic recovery through 2023, the reality is that the rapid spread of the virus will impact activity in the very near-term. The Australian market was also weaker in December, with the ASX300 Accumulation Index finishing the month down -3.3%. All sectors delivered negative returns, however, the Metals & Mining sector (- 0.8%) again performed best, driven by expectation of a pick-up in Chinese commodity demand as their economy reopens. Defensive sectors such as Consumer Staples (-1.8%) and Telcos (-2.6%) also outperformed in the more cautious environment. By contrast, more cyclical and interest rate sensitive sectors such as Consumer Discretionary (-7.0%), IT (-5.6%), Industrials (-4.9%), Healthcare (-4.4%) and REITs (-4.0%) lagged. Financials (-3.5%) were also softer, with the major banks declining by an average of -4.0%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/1222_Wholesale_PVAST.pdfNovember, 2022
Markets continued to rally in November, as signs of easing inflation sparked hopes that the pace of Central Bank tightening would start to slow from the end of this year. Markets were also boosted by suggestions that the Chinese Government was beginning to soften its stance on COVID zero and loosen some of the restrictions. Combined, these factors saw all major global markets finish the month in positive territory. The S&P500 finished the month up +5.4%, the NASDAQ rose +4.4%, while the Nikkei 225 added +1.4%. The FTSE100 lifted by +6.7%, as the political situation stabilised to some degree in the UK.
The Chinese market was the standout, with the Shanghai Composite returning a very strong +8.9% on hopes of an accelerated reopening. The Australian market was also stronger in November, with the ASX300 Accumulation Index finishing the month up +6.5%. All sectors delivered positive returns, however, it was Metals & Mining (+18.3%), which was the standout, as the mining stocks rallied in anticipation of a pick-up in Chinese commodity demand. The Healthcare (+5.9%) and REIT (+5.8%) sectors were also strong, while the Financials (+2.2%) lagged.
Looking forward, while global activity generally remains sound, the prospect of recessions in the US and Europe is increasing. Economic activity in Australia continues to remain very robust, with low unemployment and resilient consumer spending, despite interest rate rises and inflationary pressures. However, this too is likely to slow next year. The course of the war in Ukraine and Chinese Government policy will also have significant and unpredictable impacts.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/1122_Wholesale_PVAST.pdfOctober, 2022
Despite inflation data continuing to come in above expectations, some signs of weakening economic data led to hopes of a “Central Bank pivot”, which would see the pace of interest rate rises slow. This caused markets to stage a rally in October, with the S&P500 finishing the month up +8.0%, the NASDAQ rallying +3.9%, the Nikkei 225 adding +6.4% and the FTSE100 lifting by +2.9%. The exception was the Chinese market, which fell -4.3%.
The Australian market was also strong in October, with the ASX300 Accumulation Index finishing the month up +6.0%. Financials (+12.1%) led the market higher, with the banking sector rallying into their results. The REITs (+9.9%) were also stronger, on the prospect of slowing interest rate rises, while Energy (+9.1%) rallied as the oil price rebounded. Consumer Discretionary (+8.8%) was also strong, with spending continuing to remain robust. Metals and Mining (-1.0%) was the worst performing sector, as most commodity prices fell on continued weak Chinese economic data and a lack of indications that their zero-COVID policy would change in the near term.
Looking forward, while activity remains strong, markets are increasingly pricing recessions in the US and Europe. Investors are searching for signs of slowing activity and easing inflationary pressures, which could foretell the end of the current rate tightening cycle. Economic activity in Australia continues to remain very robust, with low unemployment and resilient consumer spending despite interest rate rises and inflationary pressures. The course of the war in Ukraine and Chinese government policy will also have significant and unpredictable impacts on markets
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/1022_Wholesale_PVAST.pdfSeptember, 2022
Persistently high inflation and ongoing hawkish commentary from the US Fed and other central banks, saw bond yields rise and growth expectations fall, sending global markets sharply lower in September. The S&P500 finished the month down -9.3%, the NASDAQ fell - 10.5%, FTSE100 declined -5.4%, the Nikkei 225 shed -7.7% and the Shanghai Composite was off -5.6%.
The Australian market was also weaker in September, with the ASX300 Accumulation Index finishing the month down -6.3%. While all sectors of the market delivered negative returns, the Resources sector again outperformed, with Metals and Mining (-1.9%) and Energy (-3.9%) the best performing sectors over the month. The prospect of higher interest rates saw rate sensitive sectors such as Utilities (-13.8%), REITs (-13.6%) and IT (-10.4%) down sharply, while a darkening economic outlook saw Industrials (-9.5%) and Consumer Discretionary (-9.2%) weaker.
Looking forward, while activity remains strong, markets are increasingly pricing recessions in the US and Europe. Investors are searching for signs of slowing activity and easing inflationary pressures, which could foretell the end of the current rate tightening cycle. In this respect, the coming US quarterly earnings season will be very interesting. Economic activity in Australia also remains very robust, with consumer spending holding up despite interest rate rises and inflationary pressures.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0922_Wholesale_PVAST.pdfAugust, 2022
After a positive start to the month, hawkish commentary from the US Fed meeting at Jackson Hole, saw bond yields rise sharply causing most global markets to sell off and end the month lower. The S&P500 finished the month down -4.2%, the NASDAQ fell -4.6%, FTSE100 declined -1.9% and the Shanghai Composite was off -1.6%. The Nikkei 225 was the exception, rising 1.0%. The Australian market fared better in August, with the ASX300 Accumulation Index rising by 1.2% over the month. The outperformance of our market was driven by its heavy weighting to Resources, with Energy (+7.8%) and Metals and Mining (+5.5%) the best performing sectors over the month. By contrast, the more interest rate sensitive sectors such as REITs (-3.6%), Consumer Staples (-1.7%) and Utilities (-1.6%) weighed on the market. Reporting season was the highlight of the month, with results generally being slightly better than market expectations. While there are a range of macroeconomic headwinds building, to date, company earnings are proving resilient, with activity levels and spending remaining strong. Further, while cost pressures are increasing, companies have, by and large, been able to raise prices sufficiently to maintain margins. However, looking forward, understandably cautious guidance statements saw overall downgrades to earnings expectations for the current financial year.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0822_Wholesale_PVAST.pdfJuly, 2022
Markets rallied in July, partially reversing June’s sharp sell-off, as investors took the view that we may be close to peak inflation and therefore that the rate hiking cycle may not be as steep and prolonged as had been feared. This saw a fall in long-term bond yields, which was supportive of equities markets. Most major indices were strong, with the S&P500 +9.1%, the NASDAQ +12.3%, the FTSE100 +3.5% and the Nikkei 225 +5.3%. The exception was the Chinese market, which saw the Shanghai Composite -4.3% on rising COVID numbers and weak economic data due to lockdowns.
The easing of bond yields saw a rotation in markets, with growth and interest rates sensitive sectors outperforming. By contrast, concerns over the impact of coordinated central bank cash rate increases on global economic growth saw the more cyclical parts of the market underperform.
The Australian market also rallied in July, with the ASX300 Accumulation Index rising by +6.0%. The best performing sector was IT (+15.4%), as falling bond yields provided some reprieve to many of the tech stocks which had been aggressively sold down in recent months. Similarly, REITs (+11.8%) outperformed over the month. The Financials (+9.4%) were also stronger, with the banks recovering some of last month’s losses, as the prospect of a less aggressive tightening cycle reduced fears over bad debts.
Metals & Mining (-1.3%) was the only sector to deliver a negative return, as investors worried about the combined impacts of ongoing COVID lockdowns and weak activity levels in China, as well as slowing growth more generally. Energy (+2.2%) also underperformed the market, having performed very strongly over the last 12 months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0722_Wholesale_PVAST.pdfJune, 2022
Markets declined sharply in June, with most major indices falling, as the market began to worry about the impact of rising interest rates on the global growth outlook. These macro concerns saw the S&P500 fall -8.4%, the FYSE100 decline -5.8% and the Nikkei 225 ease -3.3%. The NASDAQ, which had borne the brunt of previous selling, continued to slide, falling -8.7%, as tech stocks continued to be derated due to the perceived end of the “free money” era. The Chinese market was once again the bright spot during the month, with further optimism that lockdowns are easing, and that the government will unveil more stimulus measures. This saw the Shanghai Composite up strongly, rallying +6.7%. The Australian market also fell in June, with the ASX300 Accumulation Index declining by -9.0% over the month. The market was dragged down by the more cyclical sectors, with Financials (-11.9%) and Metals & Mining (-13.5%), as investors worried about the prospects for a sharp economic slowdown. REITs (-10.4%) and IT (-11.2%) also dragged as rising bond yields pressured their valuations.
Consumer Staples (+0.2%) was the only sector to post a positive return, with the risk-off sentiment seeing investors flock to the perceived safety of the sector. The Energy sector (-0.6%), also outperformed the rest of the market, with the oil price remaining strong, as supply continues to be impacted by Russian sanctions, with little scope for other producers to increase production in the near-term. Other defensive sectors also outperformed, with Healthcare (-3.2%) and Telcos (-3.9%), holding up relatively well. While the level of economic risk is clearly rising, the pull-back in markets has made the valuations of many stocks significantly more attractive and is presenting many good opportunities.
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The Trust returned -3.1% after-fees in May, underperforming the Index by -0.4%. For the last 12 months, the Trust has delivered a return of +8.0%, outperforming the Index by +3.3% after-fees. This demonstrates the ’ leverage to the value rotation which has been taking place as economies have reopened and interest rates have begun to rise from their historically low levels.
While the current uncertainties may cause a short-term pause, we expect that this rotation will still have a long way to run, given the macro backdrop and the high level of valuation dispersion which exists in the market. As such we continue to position the portfolio to benefit from this trend.
Better performing stocks during the month included our Resources holdings, with South 32 (+4.8%), BHP (+4.4%) and Rio Tinto (+1.4%) all outperforming. At the beginning of the year, the Chinese government had adopted a number stimulus measures to achieve their growth target of around 5.5% for 2022. However, the impact of COVID means that far more aggressive measures will be needed if this target is to be met. As a result, many of these measures have been brought forward and it is likely that significant additional measures will be announced early in the second half of the year. As in the past, these measures will likely focus on the infrastructure and property sectors and be positive for resources and commodity prices.
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The Trust returned -0.4% after-fees in April, outperforming the Index by +0.4%. For the last 12 months, the Trust has delivered a return of +14.4%, outperforming the Index by +4.2% after-fees.
This demonstrates the ’ leverage to the value rotation which has been taking place as global growth has improved and interest rates have begun to rise from their historically low levels. While the current uncertainties may cause a short-term pause, we expect that this rotation will still has a long way to run, given the macro backdrop and the high level of valuation dispersion which exists in the market. As such we continue to position the portfolio to benefit from this trend.
Ramsay Healthcare (+24.5%) was the top performing stock over month, after receiving a takeover offer from private equity firm, KKR. Corporate activity has been a significant feature of the market in recent times, as cashed up investors such as super funds and private equity firms take advantage of depressed equity market valuations. In the case of Ramsay Healthcare, earnings had been impacted by disruptions to elective surgery due to COVID. This had seen the share price sold down sharply and provided us with an attractive entry opportunity on the view that surgical volumes would eventually normalise. However, as is often the case, long-term value was realised sooner via corporate activity. The takeover offer of $88 per share represented a 31% premium to our entry price of $67. This was a similar situation to Sydney Airport, which we acquired in 2020 after it had been sold off due to COVID and which was later acquired by a consortium of infrastructure investors at a significant premium.
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The Trust returned +5.8% after-fees in March, underperforming the Index by -1.1%. For the last 12 months, the Trust has delivered a return of +18.5%, outperforming the Index by +3.3%. This demonstrates the ’ leverage to the value rotation which has been taking place as global growth has improved and interest rates have begun to rise from their historically low levels.
On balance, we view the outlook as positive, with economies recovering strongly as COVID recedes. Economic data continues to be strong in most regions, with very low unemployment rates. The Australian economy is performing particularly strongly and will continue to be a key beneficiary of the strength in commodity markets. However, there are a number of potentially significant changes in the global economic and political backdrop, from the return of inflation and the change in the interest rate cycle, to rising geopolitical tensions. As a result, the level of uncertainty is elevated, and a degree of caution is warranted.
This view is expressed in the portfolio through holding a combination of stocks with cyclical leverage, as well as stocks with solid defensive characteristics. Importantly, the portfolio is positively leveraged to improving growth, higher inflation, and rising interest rates. Within the cyclical part of the portfolio, this is achieved through overweight positions in the Resources, Energy and Consumer Discretionary sectors. In the defensive part of the portfolio, this is achieved through holdings in the sectors such as Telcos, Healthcare and Insurance as well as a modest overweight in gold
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0322_Wholesale_PVAST.pdfFebruary, 2022
The Trust performed well during the month, returning +3.0% after fees, outperforming the Index by +0.9%. For the last 12 months, the Trust has delivered a return of +15.3%, outperforming the Index by +5.0%. This demonstrates the Trust’s leverage to the value rotation which has been taking place as global growth has improved and interest rates have begun to rise from their historically low levels.
While the current uncertainties may cause a short-term pause, we expect that this rotation will continue and still has a long way to run, given the macro backdrop and the high level of valuation dispersion which exists in the market. As such we continue to position the portfolio to benefit from this trend.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/0222_Wholesale_PVAST.pdfJanuary, 2022
The strong run global markets had been experiencing came to an abrupt end in January, as investors began to factor in the prospect of interest rate hikes and the end of bond buying by the Fed. This had been expected for some time, given the strength of the post-COVID economy and the high level of inflation, however, the tone of commentary from the Fed was more hawkish than some had hoped. The result was a sharp sell-off in those parts of the market most lacking in valuation support. In particular, expensive growth and loss making tech stocks were hit very hard. By contrast, the better value parts of the market tended to outperform. This saw the Trust outperform by +3.2% over the month.
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Looking ahead to 2022, assuming that vaccines prove to be effective against the Omicron COVID variant, we see the outlook as positive, with ongoing economic recovery, underpinned by relatively low interest rates and continuing stimulus measures. Further, we look forward to the return to a more “normal” economic environment, as tapering and rate rises start to see the distortions caused by extremely low interest rates and unconventional monetary policy abate.
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Global markets were generally softer in November, with renewed uncertainty stemming from the emergence of the Omicron COVID variant seeing most major indices decline over the month. The Australian market was also slightly weaker in November, with the ASX300 Accumulation finishing the month down -0.5%. The Australian market was weighed down by the major banks. While the economic backdrop remains very supportive and the sector is in a strong financial position, low interest rates continue to drag on margins. This will be an ongoing headwind until the RBA begins to lift the cash rate. Defensives tended to outperform cyclicals in the more cautious environment.
However, the Resources sector was an exception, with the iron ore stocks rallying in anticipation of policy easing in China. The direction of the iron ore price and with it the share prices of the bulk miners, will be a major driver of the market in the period ahead. Looking ahead to 2022, absent further COVID issues, we see the outlook as positive, with ongoing economic recovery, underpinned by ongoing low interest rates and stimulus measures.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/1121_Wholesale_PVAST.pdfOctober, 2020
Global markets were generally positive in October, led by the S&P500, which rallied +6.7%, on the back of a strong US earnings season. The US economy continues to recover well despite rising inflationary pressures and supply chain disruptions. Importantly, labour market conditions remain very robust. The Australian market inched higher in October, with the ASX300 Accumulation finishing up +0.1%. The market was weighted down by the miners, which lagged as the iron ore price declined. In addition some of the more interest rate sensitive names suffered as bond yields rose sharply on the back of higher inflation readings. The AGM season got underway during the month, with companies overall making positive comments regarding improving operating conditions as the NSW economy progressively reopened. The ongoing reopening of the economy and borders is set to see activity recover strongly and we expect to see the domestic economy bounce back quickly, as it did following previous lockdowns, with low interest rates supporting growth and the labour market remaining very strong.
File:September, 2021
Markets were weak in September, with the S&P500 down -4.8%, as investors became concerned with a number of issues including, the prospect of central bank tightening and rising bond yields, increasing inflationary pressures and supply chain disruptions, the US debt ceiling as well as slowing growth and issues in the Chinese property market following the collapse of developer Evergrande. The Australian market was also lower, with the ASX300 Accumulation experiencing its first negative monthly return in the last 12 months, finishing down -1.9%. Despite this, the index has delivered a total return of +30.9% for the last 12 months and remains above preCOVID levels. Pleasingly, the Trust outperformed during the month, declining only 0.2%. Since the market’s low in March 2020, the Trust has performed very well, outperforming the market by +8.1% p.a. after fees. This performance highlights the Trust’s leverage to the post-COVID economic recovery. Historically, value style investing has delivered significant outperformance during economic recoveries.
File:July, 2021
The Trust delivered a return, including franking credits and after fees of 1.3% in July, slightly ahead of the index return of 1.1%. Over the last 12 months, the Trust has performed strongly, delivering a return of 32.5%, outperforming the index by +2.0%. This performance highlights the Trust’s leverage to the improving, post-COVID economy. Historically, value style investing has delivered significant outperformance during economic recoveries.
The Australian market rose again in July, with the ASX300 Accumulation Index making another record high, finishing the month up +1.1% and bringing the total return for the last 12 months to a very healthy +29.1%. Resources were the standout over the month, with the sector rising strongly in anticipation of reporting strong profit results and large dividends, while Financials were weaker, as the recent COVID lockdowns weighed on sentiment towards the banks. Looking to the current financial year, market dividends are expected to increase significantly as corporate earnings recover post-COVID. The Trust is currently targeting a 30% increase in FY22 net distribution to 5.5 CPU. Based on the unit price at the start of the year, this equates to a cash distribution yield of around 5.5% and 7.5%, including franking credits.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/176335551.pdfJune, 2021
The Trust delivered a return, including franking credits and after fees of 2.3% in June, in line with the index return. Over the last 12 months, the Trust has performed strongly, delivering a return of +30.0%, outperforming the index by 0.2%. This performance highlights the Trust’s leverage to the improving, post-COVID economy. Historically, value style investing has delivered significant outperformance during economic recoveries.
Stocks which contributed positively over the month included Telstra (+6.8%). The Telecommunications companies have struggled in recent years, as the NBN roll-out has impacted earnings from their fixed line businesses. However, as this nears completion, these headwinds are abating and their mobile businesses will be able to drive overall earnings growth, assisted by the take up of 5G technology and everincreasing data needs. Further, the recent merger of TPG with Vodafone has improved the industry structure, effectively locking in a three-player market. This is likely to lead to a rational competitive environment and recent pricing increases suggest this is occurring.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/174257947.pdfMay, 2021
Markets continued their upwards march in May, driven by strong economic data, expectations of further stimulus measures and the accelerating vaccine rollouts. This saw most major indices post positive returns. The market was also helped by a slight pull-back in bond yields.
• The Australian market also performed strongly, with the ASX300 Accumulation Index finishing the month up 2.3%. Sector performance was mixed, with strong performances from both cyclical sectors such as Financials, as well as growth sectors such as Healthcare.
• The Trust is targeting an FY21 pre-tax distribution yield of around 7%. While market dividends will be lower, the Trust will seek out the best dividend opportunities and may seek to supplement income generation by undertaking limited call-writing
The Trust delivered a return, including franking credits and after fees of 2.7% in May, outperforming the index by 0.4%. Over the last 12 months, the Trust has performed strongly, delivering a return of +30.4%, outperforming the index by 0.3%. This performance highlights the Trust’s leverage to the improving, post-COVID economy. Historically, value style investing has delivered significant outperformance during economic recoveries.
Stocks which contributed positively over the month included the major banks, which returned an average of +6.4%, after reporting half-year results which demonstrated positive operating trends and saw a significant rebound in dividends. While the banks have faced a raft of challenges over the past several years, many of the headwinds they have experienced are now turning into tailwinds. Credit growth is now starting to pick up, interest margins have stabilised and may well begin to rise, expenses are being brought under control and credit quality has remained very strong despite the impacts of COVID. These factors should combine to return the sector to earnings and dividend growth over the coming years. Further, the banks are well provisioned, having taken large charges early on in the pandemic and have very strong capital positions. As the economic uncertainty recedes, the banks will be able to both release some of these surplus provisions and return some of this surplus capital to shareholders. Combined with their relatively attractive valuations and leverage to rising interest rates, we see further upside for the sector from here.
Ampol (+11.6%) performed strongly after the government announced an industry support package which will underpin earnings from its refining operations at Lytton in Queensland until at least 2027. This is an important move to maintain energy security in Australia and will significantly reduce volatility of earnings from this division. Aristocrat Leisure (+10.8%) rallied after delivering a result which was well ahead of market expectations, driven by very strong growth in their digital business. The company is diversifying away from its traditional gaming machine business and is now a top 5 global developer of online social games. The company is very wellpositioned, with a strong balance sheet allowing it to invest heavily into new product development.
Woolworths (+5.9%) outperformed after announcing the details of the planned demerger of the supermarkets business and its Endeavour Drinks unit, which contains its liquor and hotel operations. History has shown that demergers such as these often create value for shareholders, with each business better able to focus on its specific goals. The company also indicated that, following the demerger, they could return between $1.6-2.0bn capital to shareholders.
Telstra (+3.8%) was stronger as price rises from key competitor Optus signalled that the mobile market was becoming less competitive. This follows on from management changes at TPG – owner of the Vodafone network – which suggested that they would also be less aggressive going forward. All this bodes well for Telstra’s earnings outlook and dividend paying ability.
Tabcorp (+2.8%) continued to rise as the bidding war for its wagering operations played out, with a number of interested parties seeing the notional price being bid increasing from $3.0bn to $3.5bn to $4.0bn. The potential for corporate activity of this nature was one of the key attractions of holding this stock.
Holdings which detracted from performance included Seven Group (-7.0%), Woodside Petroleum (-4.6%) and Macquarie Group (-3.2%). We remain comfortable with the outlook for each of these stocks.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/173160045.pdfApril, 2021
Global markets generally performed strongly in April, driven by strong economic data, expectations of further stimulus measures and the accelerating vaccine rollout in the US and UK. The market was also helped by a slight pull-back in bond yields.
• The Australian market also performed strongly, with the ASX300 Accumulation Index finishing the month up 3.7%. Sector performance was mixed, with strong performances from both cyclical sectors such as Resources, as well as growth sectors such as IT.
• The Trust delivered a return of +3.2%, underperforming the market by 0.5% after fees. However, over the last 12 months, the Trust has outperformed the index by 6.2% after-fees. This has been driven by strong performances from a large number of our holdings across a range of different sectors.
• Since the market’s low in March 2020, the Trust has performed very well, returning +73.7% and outperforming the market by 13.3% after fees. This performance highlights the Trust’s leverage to the post-COVID economic recovery. Historically, value style investing has delivered significant outperformance during economic recoveries.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/171285406.pdfDecember, 2020
Global markets rose in December, building on November’s strong gains, as markets continued to look optimistically towards a postTrump, post-COVID future, with all major global indices delivering positive returns. The Australian market also rose, with the ASX300 Accumulation Index finishing the month up +1.3%, with generally positive economic news and corporate trading updates offsetting concerns over the COVID outbreak in NSW. Over what has been an extraordinary year, the market has delivered a total return of +1.7% and has recovered to be within -8% of its pre-COVID high.
The Trust is targeting an FY21 pre-tax distribution yield of around 7%. While market dividends will be lower, the Trust will seek out the best dividend opportunities and may seek to supplement income generation by undertaking limited call-writing.
During the month, we added Metcash to the portfolio, ahead of what we expected to be a strong profit result. The Trust also participated in a capital raising by Charter Hall Long WALE REIT. This was funded by taking profits and reducing holdings in Amcor and trimming our holdings in the major banks following their strong run in November. At month end, stock numbers were 38 and cash was 1.0%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/163382133.pdfticker: IOF0206AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://perennial.net.au/our-trusts/australian-shares-wholesale/
asset_class: Domestic Equity
asset_category: Australia Large Value
peer_benchmark: Domestic Equity - Large Value Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund
manager_contact_details: Array
fund_features:
Perennial Value Shares Wholesale Trust aims to grow the value of your investment over the long term via a combination of capital growth and income, by investing in a diversified portfolio of Australian shares, and to provide a total return (after fees) that exceeds the S&P/ASX 300 Accumulation Index measured on a rolling three-year basis. The Trust aims to achieve this objective by investing into the Perennial Value Australian Shares Trust. Perennial Value Management Limited (PVM) is a clearly defined bottom-up value driven manager with a value bias less pronounced than that of a deep value investment manager. PVM aims to identify and invest in quality companies, with sustainable businesses where the share price is trading at a discount to valuation. Lonsec’s style analysis confirms PVM’s adherence to its discipline and time tested true to label process.