September, 2023
The Fund delivered a negative return over the month, which was driven by both the Fund’s growth asset and defensive asset exposure.
Asset allocation changes
In September, we observed negative performances in hedged international equities and Australian equities, both declining by -3.8% and -2.9%, respectively. Volatility also surged during the month, compounding the challenges faced. The fixed interest sector, both domestically and offshore, delivered negative results, detracting -1.5% and -1.9%, respectively.
September was marked by heightened volatility in both growth and defensive assets. Notably, there were significant developments in future interest rate projections, yield curve profiles, and inflation.
During the month, a hawkish press conference from the US Federal Reserve (Fed) reinforced the ‘higher for longer’ narrative in the market. This shift reduced the likelihood of near-term rate cuts and led to substantially higher long-term borrowing costs. This, in turn, had a negative impact on asset values across various asset classes.
Regarding inflation, there is mounting evidence, especially in some major developed countries, suggesting that wage pressures and declining productivity pose significant challenges in achieving sustained inflation at the 2% target. Additionally, the issue of increasing rents is a notable inflationary concern in countries experiencing significant migration, such as Canada and Australia. While this is not our base case scenario, it's crucial to acknowledge the increasing risks and their potential implications on neutral interest rates and asset price behaviours across different asset classes.
Throughout the month, our Fund maintained a defensive posture, closely monitoring developments in the fixed income market. In the near term, we anticipate a higher probability of increasing positive correlation between defensive and growth assets, an unusual phenomenon that does not warrant an immediate portfolio response, in our view.
In summary, as volatility has risen and asset values have improved recently, we are closer to a shift back into growth assets. We also note the continued weakness of the AUD, presenting an opportunity in the currency market.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Macquarie-Real-Return-Opportunities-Fund-Performance-Report-PRRP-MAO-ANZ-2-1.pdfAugust, 2023
The Fund delivered a positive return over the month, which was driven by the Fund’s defensive asset exposure.
Asset allocation changes
In August, hedged international equities detracted -1.9% while Australian equities fell by -0.8%. The fixed interest sector delivered a mixed result, contributing +0.7% domestically and detracting -0.3% offshore.
In August, we observed heightened volatility in both growth and defensive assets. Sentiments toward growth assets were negatively impacted by the potential default of one of China's largest property developers, Country Garden. The significant deterioration in the financial health of prominent Chinese property developers, such as Evergrande Group and Country Garden, raised concerns about the Chinese housing sector's stability. This subsequently led to apprehensions about severe youth unemployment, Chinese economic growth, and the banking system and triggered substantial drawdowns in the Chinese and Hong Kong stock markets.
The Chinese government responded with stimulus efforts including reducing borrowing costs, easing apartment purchase restrictions, and lowering stock trading stamp duties. These measures provided temporary support to market sentiment, but the improvement was shortlived. The extent of these stimulus measures appeared underwhelming compared to market expectations. In other regions, we continue to observe weakness in European economic activities, particularly in the manufacturing sector, as indicated by manufacturing PMI releases. Additionally, previously robust services PMI indicators for Germany, the Euro Zone, and the UK have contracted. In Europe, the "bad news is good news" philosophy seems to have taken hold, where deteriorating economic conditions are perceived positively due to expectations the “bad news” will result in less restrictive European Central Bank policies. On the domestic front, Australia experienced an uptick in unemployment rates and ongoing consumption weakness.
In August the Fund closed out a short AUD position as the AUD/USD rate fell by -3.5% hitting a low just above 0.64. The AUD depreciation was driven by weaker economic performance and interest rate differentials. Our Fund remained defensively positioned in light of heightened risks and potential spillover effects surrounding the China property market and tighter financial conditions.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Macquarie-Real-Return-Opportunities-Fund-Performance-Report-PRRP-MAO-ANZ-1-1.pdfJuly, 2023
The Fund delivered a positive return over the month, which was driven by both the Fund’s growth asset and defensive asset exposure.
In July, hedged International equities and Australian equities performed positively while volatility continued to decline, both contributed +2.9%. The fixed interest sector delivered a mixed result, contributed +0.5 domestically and detracted -0.5% offshore.
In July, there was a significant improvement in investor sentiment towards growth assets. A series of better than expected inflation data in the US reinforced the market’s belief in the ‘soft-landing’ scenario. A soft-landing scenario sees inflation and economic growth slowing, but not to an extent which drives a significant increase in the unemployment rate. In Australia, the Reserve Bank of Australia paused raising interest rates but signalled further tightening measures to come. Most market participants now anticipate this interest rate cycle will peak at 4.3%, 0.3% lower than last month. Finally, Bank of Japan kept its short-term interest rate target below zero, but shocked markets by adjusting a policy that effectively raised the cap on the 10-year government bond yield from 0.5% to 1.0%. Relative to growth asset, fixed income assets continued to experience significant volatility.
Throughout the month, our Fund maintained a defensive stance. Despite recent improvements in market sentiment and valuation, we continue to favour a defensive asset allocation stance in our portfolio due to the high level of interest rates and rich equity valuations.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Macquarie-Real-Return-Opportunities-Fund-Performance-Report-PRRP-MAO-ANZ-4.pdfJune, 2023
The Fund delivered a negative return over the month, which was driven by defensive asset exposure.
In June, hedged International equities improved significantly as volatility continued to decline, contributing +5.6%. Australian equities underperformed relative to global shares with a +1.7% return. The fixed interest sector delivered a negative result, detracting -2.0% and - 0.4% for the Australian and International sectors respectively.
Market sentiment in growth assets continues to be driven by the positive outlook surrounding AI and tech shares, especially during the first half of the month. In fixed income, interest rates along the curve have generally increased as evidence suggests that inflation may be stickier than initially anticipated. In Australia, the Reserve Bank of Australia surprised the market with a +0.25% increase in the cash rate, bringing it to 4.1%, and signalling further tightening measures to come. Market participants now anticipate an additional 0.5% increase by September this year. This has resulted in substantial underperformance in Australian fixed interest compared to International fixed interest. Australian equities have also experienced notable underperformance and increased volatility.
Throughout the month, our fund maintained a significant defensive stance. Looking ahead, we anticipate a shift in market focus from "inflation" to "recession" over the medium term. This shift is driven by factors such as the high cash rate, tighter credit conditions resulting from the recent banking crisis in the US, and the global decline in office values. Despite recent improvements in market sentiment and valuations in growth assets, we continue to favour a significantly defensive asset allocation stance in our portfolio.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Macquarie-Real-Return-Opportunities-Fund-Performance-Report-PRRP-MAO-ANZ-3.pdfMay, 2023
The Fund delivered a negative return over the month, which was driven by both the Fund’s growth asset and defensive asset exposure.
In May, hedged International equities fell slightly while volatility continued to decline, detracting -0.2%. Australian equities underperformed with a -2.5% return. The fixed interest sector delivered a negative result, detracting -1.2% and -0.8% for the Australian and International sector respectively. Volatility in equities remained surprisingly low in May, despite the uncertainty surrounding the potential US default that continued to dominate market headlines. As the likelihood of a US default decreased throughout the month, market attention shifted towards the AI sector. The substantial upward guidance of revenue from Nvidia sparked global optimism towards AI-related sectors. The month concluded on a positive note as the US labour market showed no signs of stress or deterioration. In the fixed income market, there is now an expectation of more rate hikes in both the US and Australia.
Throughout the month, our Fund maintained a defensive stance close to the maximum allowable level. Looking ahead, we believe that the market will shift its focus from "inflation" to "recession" over the medium term. This is driven by factors such as the high cash rate, tightening credit availabilities resulting from the recent banking crisis in the US, and the potential liquidity drain from US Treasury bill issuance due to an increase in the debt ceiling. Therefore, despite recent improvements in market sentiment and valuation, we continue to favour a significantly defensive asset allocation stance in our portfolio.
File:April, 2023
The Fund delivered a positive return over the month, which was driven by both the Fund’s growth asset and defensive asset exposure.
In April, hedged international and Australian equities performed well with a notable decreased in volatility, contributing +1.6% and +1.9% respectively. With regard to fixed interest, the sector also delivered a positive result, with both domestic and global contributing +0.2%. During the month, volatility across major equity market indices declined significantly. Equity markets were primarily focused on the US Q1 corporate earnings, which, at an aggregate level, showed blended earnings decline of -3.7%.
Despite the contraction in earnings, the results were significantly better than expected. Therefore, despite the negative headline earnings number, positive earnings surprises fuelled investor sentiment and propelled equity markets higher. Our Fund continued to maintain a defensive stance close to the maximum allowable level. During the month, we utilised the profits we gained from our delta hedging activities in March to acquire more equity downside protection with September 2023 maturity puts, as implied volatilities were trading at post covid lows.
In the near term, we anticipate a significant uptick in volatility as we approach the US 'debt-ceiling' deadline. Over the medium term, we continue to believe that the market will shift its focus from 'inflation' to 'recession'. As a result, both the June and September option structures will enable us to take advantage of any potential increases in equity market volatility in the coming months.
File:March, 2023
The Fund delivered a positive return over the month, which was driven by both the Model Portfolio’s growth asset and defensive asset exposure.
In March, market performance was driven by lower-than-expected inflation prints as well as a crisis of confidence regarding segments of the banking sector. During the month hedged international and Australian equities delivered mixed results with volatility increased significantly, contributing +2.6% and detracting -0.2%. With regard to fixed interest, the sector delivered a positive result, contributing +3.2% domestically and +2.5% offshore.
Our Fund maintained a highly defensive stance. Given the market conditions, we continue to anticipate the possibility of increased volatility and plan to maintain this position for the time being. However, if growth assets show significant improvement in valuation or global monetary policy becomes less aggressive, we will re-evaluate and adjust our focus to capture upside opportunities within growth assets.
During the month, we bought Australian equities taking profit on put option protection we acquired in January. We also noted a substantial decrease in volatility, particularly in Australia and Europe, in late March. We see this as an opportunity to utilise some of the profit we gained from our delta-hedging activities to acquire more put-option protection with expiry extended to September.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Macquarie-Real-Return-Opportunities-Fund-Performance-Report-PRRP-MAO-ANZ-1.pdfFebruary, 2023
The Fund delivered a negative return over the month, which was driven by the Fund’s allocation to both growth and defensive assets.
In February, hedged international and Australian equities performed negatively with volatility increase significantly, detracting -1.6% and -2.6% respectively. With regard to fixed interest, the sector also delivered a negative result, detracting -1.4% domestically and -1.7% offshore. Finally, our global real estate and global infrastructure asset also delivered negative result, both detracted -3.6%. Markets were driven by inflation surprises to the upside during the month, which markedly increased the terminal cash rate in both the US and Australia. Our Model Portfolio maintained a defensive stance close to the maximum allowable level.
Given the market conditions, we continue to anticipate the possibility of increased volatility and plan to maintain this position for the time being. However, if growth assets show significant improvement in valuation or global monetary policy becomes less aggressive, we will re-evaluate and adjust our focus to seize upside opportunities within growth assets. The put-option protection in Australia equities we acquired last month provided reasonable protection as the market began to decline. We also increased Australian duration exposure, as the 10-year yield climbed sharply over the month to close to 4%. Over the next few months, we will continue to focus on managing downside risks while remaining alert to growth asset valuations.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Macquarie-Real-Return-Opportunities-Fund-Performance-Report-PRRP-MAO-ANZ.pdfDecember, 2022
Fund performance and positioning
- Performance: The Fund delivered a negative return over the month, which was driven by both the Portfolio’s growth asset and defensive asset exposure.
- Portfolio changes: the Fund acquired an out-of-money put option in Australian equities, as a protective tool.
- Asset allocation strategy: Maintain highly defensive asset allocation positioning.
- Long term market outlook: Maintain defensive bias, albeit with a focus on opportunities to acquire undervalue assets despite heightened volatility.
In December, hedged international and Australian equities performed poorly with increased volatility, detracting -5.2% and -3.3%, respectively. With regard to fixed interest, the sector also delivered a negative result, detracting -2.1% domestically and -1.9% offshore. In December, markets across all asset classes were volatile. Despite the positive sentiment from lower-than-expected inflation prints, this offset by increasing concerns of a global recession, corporate earnings downgrades, the ongoing COVID-19 outbreaks in China and the prevalence of higher terminal cash rates in the US. We expected that the Fund may need to weather heightened volatility given current market conditions, as such we expect to retain defensive positioning for some time. However, should valuations in growth assets improve significantly or the trajectory of global monetary tightening becomes notably less aggressive, our focus will shift accordingly to focus on capturing upside opportunities within growth assets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/195260440.pdfNovember, 2022
The Fund delivered a positive return over the month, which was driven by the Fund’s allocation to both growth and defensive assets.
In November, hedged international equities and Australian equities delivered strong performance, albeit with increased volatility, contributing +6.5% and +5.4%, respectively. With regard to fixed interest, the sector also delivered a positive result, returning +1.6% domestically and +2.0% offshore. Investment sentiment continued to improve in November.
The positive sentiment was driven by a lower-than-expected inflation, speculation that the pace of rate hikes might moderate in the US, and the prospect of a re-opened China. Within our Fund we retained our highly defensive positioning, continuing to anticipate the potential for significant downside risk to growth assets.
It is important to note that our defensive bias is strategic in nature and as such is likely to persist for some time, unless the trajectory of global monetary tightening becomes notably less aggressive. We acquired put option protection on Australian equities through the dynamic active core as market valuations improved and volatilities declined. This movement translated into a more defensive stance in our Fund positioning and is in-line with our long term strategic bias.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/193215770.pdfOctober, 2022
The Fund delivered a positive return over the month, which was driven by the Fund’s allocation to both growth and defensive assets.
In October, hedged international and Australian equities delivered strong performance with increased volatility, contributing +7.2% and contributing 6.0%, respectively. With regard to fixed interest, the sector delivered a mixed result, returning +0.9% domestically and -0.4% offshore. Finally, our global real estate and global infrastructure asset also delivered a positive result with +3.1% and +3.3% respectively. Asset prices exhibited high levels of volatility during the month but ended on a positive note. The volatility was driven by mixed corporate earnings, expectations of changes in inflation indicators and monetary policy, as well as geo-political developments. Within our Fund, we remained close to the maximum level of defensiveness. We expected that the Fund may need to weather heightened volatility given the current market conditions. It is important to note that our defensive bias is strategic.
This will likely persist for some time, unless the trajectory of global monetary tightening becomes notably less aggressive. We took profits on some of our allocation in Australian inflation-linked bonds. Our inflation-linked bonds allocation has generated significant income for our Fund due to the high quarterly inflation print. As the Reserve Bank of Australia (RBA) slowed its hiking trajectory from 50bps a month to 25bps, Australia’s long term inflation expectation increased sharply. This movement translated into a large capital gain in our inflation-linked bonds position.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/192542506.pdfSeptember, 2022
The Fund delivered a negative return over the month, which was driven by the Fund’s allocation to both growth and defensive assets.
In September, hedged international and Australian equities delivered a negative return with increased volatility, detracting -8.9% and -6.0%, respectively. With regard to fixed interest, the sector also delivered a negative result, returning -1.3% domestically and -3.4% offshore. Market sentiment weaken significant towards the end of the month, driven by a more hawkish monetary policy than expected. In September, investment sentiment was significantly impacted by higher than expected inflation in the US, multiple ‘jumbo’ rate hikes across several major central banks as well as an escalation of the Russia/Ukraine conflict. Broadly, the outcome of these developments was in line with our outlook for a continued deterioration in investment sentiment and macro-economic conditions.
Regarding the macro backdrop, there are a range of factors which in our view are likely to contribute to a weakening of economic conditions. First, significant increases in energy prices in Europe, compounded by a weaker Euro against the USD, and rising risk-free rates has the potential to present the greatest set of economic challenges for Euro region since the financial crisis of 2008. Second, the Chinese economy is slowing due to COVID-zero policies, which in turn will weaken global growth. Third, the US Federal Reserve (Fed) is unlikely to achieve its 2-3% price stability target in the coming months (explored further in the outlook section) and as a result, we expect the Fed will continue to increase interest rates rapidly. Ultimately, this translates to a strong USD, tighter credit conditions, weaker economic activity and lower asset prices.
Since the beginning of 2022, we have adopted a very cautious approach to asset allocation. The rapid deterioration in macro-economic conditions, exacerbated by unforeseeable geopolitical tension, extreme weather events such as the droughts in Europe and China, and the persistence of COVID-19 pandemic controls in China, have all brought forward the timeline and heightened the probability of a global economic recession. As such, we continue to expect elevated downside risks for growth assets to persist in the foreseeable future. In the short term, we also envision elevated volatility and downside risks in fixed income markets. However, we expect fixed income to outperform should unemployment climb, and market participants begin to appropriately price the risk of a global recession.
We expect that the Model Portfolio may experience heightened volatility given the current market conditions. In response, we have maintained our asset allocation within the Model Portfolio to near-maximum defensiveness. It is important to note that our defensive bias will likely persist for a significant period of time, unless the trajectory of global monetary tightening becomes notably less aggressive.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/191770677.pdfJuly, 2022
The Fund delivered a positive return over the month, which was driven by the Fund’s allocation to both growth and defensive assets. In July, hedged international and Australian equities performed positively with reduced volatility, contributing 8.0% and 6.0%, respectively. With regard to fixed interest, the sector also delivered a significant positive result, returning 3.4% domestically and 2.1% offshore. Market sentiment improved during the month, driven by lower commodities prices, positive corporate earnings and optimism around the possibility of possible more dovish monetary policy than expected. In July, we also started to observe market participants beginning to price in recession risks. As a result, defensive assets started to perform positively. Surprisingly, growth asset also responded well to a possible more dovish trajectory of the interest rate policies. In a recessionary scenario, we struggle to see continued positive performance from growth assets. In July, we continued to conduct board base reduction in our Fund’s equity exposure. The put option structures employed in the Fund across both Australian and international equities aim to capitalise on changes in market volatility. We continue to expect further downside risks to growth assets to persist for a significant period of time. As a result, we have moved our portfolio close to its maximum defensive. We expect that the defensive bias in our Fund is likely to persist over the medium term unless the trajectory of global monetary policy tightening shifts less aggressive.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/189606064.pdfJune, 2022
The Fund delivered a negative return over the month, which was driven by the Fund’s allocation to both growth and defensive assets. In June, hedged international and Australian equities performed negatively with significant volatility, detracting -8.1% and -8.9%, respectively. With regard to fixed interest, the sector continued to deliver a negative result, returning -1.5% domestically and -1.3% offshore.
Market sentiment continued to dampen driven by heighten inflation and the aggressive monetary policy tightening trajectory. Throughout June we continued to observe significant volatility across different asset markets, with wide trading ranges for most. In the past 6 months, both defensive and growth assets have experienced significant drawdowns, performing with a correlation close to 1. We do not believe this relationship can be sustained in the coming months as market participants start to price in a greater risk of recession. As a result, our defensive asset allocation will perform a key role within our Fund.
In June, we continued to conduct board base reduction in our fund’s equities exposure. The put option structures in Australian share market employed by the fund helped capitalise on changes in market volatility.
We continue to expect further downside risks to growth assets to persist. As a result, we have moved our equity allocation to sub-10%, with reductions across both Australian and international equities. We anticipate our equity exposure may be further reduced over the coming months. We expect that the defensive bias in our Fund is likely to persist over the medium term unless the trajectory of global monetary policy tightening shifts less aggressive. During the month, the yield on long term Australian government bonds peaked above 4%, which we utilised as an opportunity to accumulate fixed income exposure in the Fund.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/188593221.pdfMay, 2022
In May, international and Australian equities performed negatively with significant volatility, detracting -0.9% and -2.8%, respectively. With regard to fixed interest, the sector continued to deliver a negative result, returning -0.8% domestically and -0.6% offshore. Our hedged international infrastructure and property exposure delivered a mixed result, contributing 2.0% and detracting -4.7% respectively. Market sentiment continued to dampen driven by the economic impact from the Russia-Ukraine conflict, renewed public health measures in China and monetary policy trajectory. Throughout May, we continued to observe significant volatility across different asset markets, with wide trading ranges for most asset classes.
In May, we continued to dynamically manage the funds equities exposure. We tactically accumulated US equities throughout the month as market started to weaken. The option structures employed by the Fund helped capitalise on changes in market volatility. We expect the volatility experienced year to date in both defensive and growth assets to persist for a significant period of time. As a result, we are poised to position the Model Portfolio defensively in the coming months. It is important to emphasise that the defensive bias in our portfolio positioning is strategic and will persist for a significant period of time. Tactically, we continue to focus on managing asset allocation in order to capture opportunities or protect capital. Within our growth asset exposure, we have reduced the Model Portfolio’s Australian equities allocation as a step towards shifting the strategic asset allocation more defensive. In the coming months, we expect to further reduce our allocation to growth assets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/187688819.pdfApril, 2022
In April, International and Australian equities performed negatively with significant volatility, detracting -3.3% and -0.8%, respectively. With regard to fixed interest, the sector continued to deliver a negative result, returning -1.4% domestically and -2.8% offshore. Market sentiment continued to dampen during the month, driven by the economic impact from the Russia-Ukraine conflict, renewed public health measures in China and the trajectory of monetary policy. Throughout April, we continued to observe significant volatility across different asset markets, with wide trading ranges for most.
In April, we maintained a high level of put option protection in the US equity markets. The Fund continued to use option structures to enable the accumulation of equity exposure later in the month, as market valuations continued to improve throughout the month. We increased the Fund’s alternative asset allocation from 7.5% to 10%. The Fund also continued to increase its fixed income holding, concentrated in the 3 year part of the Australian yield curve, where the yield surpassed 3%.
We expect the volatility experienced year to date in both defensive and growth assets to persist for a significant period of time. This continues to present both opportunities and challenges for the Fund. We see the increase in interest rates as now at an attractive level. The income-generating and capital buffer capacity in fixed income assets globally has significantly improved. The opportunity is highlighted by the short end of the domestic yield curve, where due to the high level of Australian household debt and the sensitivity of mortgage payments to changes in interest rates we view the current market pricing as overdone.
In the coming months, we are poised to position the Fund more defensively and will likely to continue to accumulate fixed income asset
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/186801505.pdfMarch, 2022
In March, international and Australian equities performed positively, albeit with heightened volatilities, returning +2.9% and +6.9%, respectively. With regard to fixed interest, the sector delivered a negative result, returning -3.7% domestically and -2.2% offshore. Market participants continue to digest the economic impact from the Russia-Ukraine conflict, renewed public health measures in China and accelerating monetary policy trajectories of central banks. Throughout March, we continued to observe significant volatility across different asset markets, with trading ranges for most assets.
With the first quarter of 2022 at an end, we have witnessed another black swan event – the escalating tension between Russia and Ukraine. The impact of this geopolitical tension is likely to influence financial markets twofold. Firstly, via the uncertainty of further escalation and the corresponding global political dynamic and secondly via the impact of financial and political sanctions against Russia on the global economy. The increased geopolitical tension has created greater market tail-risk. However, we view a further significant escalation as unlikely, and have positioned the Fund accordingly. Importantly, we have observed significant price movements in commodities, rates as well as currency markets. There are complex reason behind these price movement such as demand/supply imbalances, inflation expectations and inventory management. Nevertheless, these significant price movements are indicating to us that tail risks are rising in the global economy and asset markets
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/186174222.pdfFebruary, 2022
The Fund delivered a negative return over the month, which was driven by the Fund’s allocation to both growth and defensive assets.
In February, international and Australian equities were mixed with heighten volatilities, detracting -2.8% and contributing 2.1%, respectively. With regard to fixed interest, the sector also delivered a negative result, returning -1.2% domestically and -0.9% offshore. February was a month of two halves. The first half continued the theme from January, where central banks were focusing on the current higher-than expected inflation and either hiking or preparing the market for higher rates. However, geopolitical events intervened during the month as the conflict between Russia and Ukraine escalated. The combination of themes during the month caused volatility to rise across asset markets, and trading ranges for most assets were wide.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/185019027.pdfDecember, 2021
In December, international and Australian equities performed positively, contributing +2.7% and +3.9%, respectively. The positive performance in equity markets was driven by a combination of the ‘Omicron’ variant, which appears to have milder symptoms, as well as supportive market technicals. With regard to fixed interest, the sector delivered a mixed result, returning +0.1% domestically and -0.9% offshore.
In our view, there are two areas of concern that we need to address in formulating portfolio positioning; firstly, the asset allocation impact if the Omicron strain poses significant health challenges globally from an economic recovery perspective; and secondly, the asset allocation implication whilst global central banks continue their tightening policies trajectory. With careful consideration, we have scaled back the Fund’s growth asset allocation moderately. We continue to expect economic recovery globally to be uneven due to the Omicron, and other potential Covid-19, variants. We expect the virus will also continue to pose significant challenges to global supply chains. Subsequently resulting in an increase in the duration and severity of inflation, leading to higher volatilities in both growth and defensive assets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/182702348.pdfNovember, 2021
In November, international and Australian equities performed negatively, detracting -1.5% and -0.5%, respectively. The negative performance in equity markets was predominantly driven by the discovery of ‘Omicron’, a potentially more contagious COVID-19 variant from South Africa, and the expectation that global monetary policy is on a tightening trajectory. With regard to fixed interest, the sector delivered a positive result and recovered significantly from the October, returning +2.1% domestically and +1.1% offshore.
It is important to recognise the uncertainties ahead of us and plan our asset allocation strategies accordingly as uncertainties unfold. In our view, there are two areas of concern that require attention in portfolio positioning; firstly, the consideration to asset allocation if ‘Omicron’ posed significant health challenges globally; and secondly, the asset allocation implication in a scenario where ‘Omicron’ does not pose a health threat globally and global central banks continue their tightening trajectory. With careful consideration, we maintain an overall overweight bias to growth assets. However, we foresee significant volatilities in the medium term particularly in the fixed income market. We continue to monitor the Fund’s fixed income exposure cautiously and expect to reduce the asset allocation weights to fixed income exposures in the medium term.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/181788796.pdfOctober, 2021
In October, international and Australian equities performed positively, delivering +5.5% and +0.1%, respectively. The outperformance in international equities was largely driven by strong earnings results, particularly in the US. For Q3 2021, the blended earnings growth rate for the S&P was 39.1%. If 39.1% eventuates as the actual growth rate for the quarter, it will mark the third highest year-over-year earnings growth rate reported by the index since 2010. With regard to fixed interest, the sector delivered a negative result, returning -3.6% domestically and -0.1% offshore. The sell-off in fixed income markets was initially triggered by a globally led shift in sentiment around inflation and more hawkish central banks offshore, Australian rates materially underperformed other regions given the lack of liquidity and dysfunction in the market.
We continue to view growth assets as our preferred asset class, in an environment where monetary and fiscal policies remain accommodative, and inflation is rising. As such, we maintain an overall overweight bias to growth assets. We view contagion risk from the Chinese property sector as low and view the market reaction as overdone. With this in mind, we have continued to utilise a put option structure for our equity exposures in the Fund, to provide a capital buffer and manage the increased market volatility. Within the Fund’s fixed income exposure, the core allocation in investment grade credit has continued to benefit from the supportive policy environment and has delivered cash-plus returns for the Fund. In interest rate duration positioning, we took the recent increase in interest rates as an opportunity to increase the Fund’s overall interest rate duration exposure particularly in Australia.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/180944493.pdfSeptember, 2021
The Fund delivered a negative return over the month, which was primarily driven by the Fund’s allocation to growth assets. Asset allocation changes In September, International and Australian equities perform negatively, delivering -3.7% and -1.9%, respectively.
The weakness was primarily driven by the concern of a potential systemic contagion risk of the Chinese property developer Evergrande, as well as a possible ‘tapering’ policy from the central banks. With regard to fixed interest, the sector also delivered a negative result, returning -1.5% domestically and -1.2% offshore, with long term interest rates moving higher throughout the month. Trading volume and market volatility was noticeably higher throughout the month across most major markets. We continue to view growth assets as our preferred asset class, in an environment where monetary and fiscal policies remain accommodative, and inflation is rising. As such, we maintain an overall overweight bias to growth assets. We view contagion risk from the Chinese property sector as low and view the market reaction as overdone. With this in mind, we have continued to utilise a put option structure for our equity exposures in the Fund, to provide a capital buffer and manage the increased market volatility. Within the Fund’s fixed income exposure, the core allocation in investment grade credit has continued to benefit from the supportive policy environment and has delivered cash-plus returns for the Fund. In interest rate duration positioning, we took the recent increase in interest rates as an opportunity to increase the Fund’s overall interest rate duration exposure.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/180258496.pdfMay, 2021
The Fund delivered a positive return over the month, primarily driven by the Fund’s growth asset exposure
The result of continuous monetary and fiscal support as well as the vaccine roll-out, has been a short term rebound in economic activity, increasing asset prices and steepening yield curves. However, embedded within this asset price increase is rising volatilities across both equities and fixed income, as market participants try to gauge the different market dynamics in the post COVID-19 environment. Fiscal policy, monetary policy and the trajectory of inflation will have significant impact on asset prices for the years to come. In terms of fiscal policy, we continue expect that a scenario in which the proposed US infrastructure bill is fully funded by additional borrowing is unlikely. In regard to monetary policy, easing will continue however, it is unlikely that central banks will increase the easing efforts from here. As a result, we expect market participants will continue to price in a higher probability for the trajectory of tightening policies such as ‘tapering’, posing a headwind for equities.
With respect to inflation, the price for goods and services continues to be interrupted by the surge in demand, due to economic reopening (demand-pull forces) and supply chain interruption (cost-push forces). We believe by mid-2022 the force from demand-pull will likely subside as the re-opening impulse fades. However, the worsening COVID-19 situation in emerging countries warrants careful monitoring in the coming months as it may further interrupt the global supply chain. Finally, rising inflation expectations are likely to be another force pushing short term cyclical inflation higher. This is likely to negatively impact fixed income markets and generate higher volatility in equity markets. Ultimately, we believe the current inflation pluses are transitory.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Macquarie-Multi-Asset-Opportunities-Fund-Performance-Report-PRRP-MAO-ANZ-1.pdfJanuary, 2021
The new year did not start off quietly. Surging virus cases, new variants and pressure on hospitals have caused governments to re-tighten restrictions. In parallel, the vaccination process has begun but there is significant divergence taking place between countries in terms of supply and administration. The very long US election process came to a head with the Georgia Senate run-off early in the month. The Democratic party obtained both seats and, with the casting vote of the Vice-President, have won control of Congress. That said, the margin is wafer-thin, and is not the blue-wave sweep that pollsters had suggested.
This reality was overlooked by the markets as expectations are for further near-term fiscal stimulus. All of these events did not stop equity markets from surging to new highs in the US and credit spreads from tightening back towards pre-pandemic levels. Bond yields rose and yield curves steepened as the longer-maturity bonds underperformed, but rate markets are nowhere near their pre-pandemic levels. This has put bond markets in the cross-hairs of debate in terms of the outlook for 2021, where optimists are forecasting an inflation surge and higher interest rates. Others, like ourselves, are sceptical particularly as bond markets have a long history of accurately reflecting the reality. The Fund delivered a negative return in the month of January. The rally in Australian equities was offset by the detraction from international equities and global fixed income exposures. The Fund maintained a higher allocation in Australian equities compared to international equities, and increased its allocation towards high quality core credit holdings. We continue to explore tail risk protection opportunities due to the uneven economic recovery, dislocation between economic fundamentals and asset prices. In January, we moderately increased the allocation to US equities as valuations improved and the potential for further US fiscal support. As we continue to push into 2021, we retain our belief that financial markets will predominantly be influenced by continuous fiscal and monetary support.
Nevertheless, these supports can lead to by-products such as wealth inequality, fundamental discordance, and political uncertainty. Firstly, wealth inequality. Global central banks have responded to the COVID-19 economic threat by significantly reducing both short and medium-to-long term costs of borrowing. This has restored financial liquidity, boosted asset prices, and supported the economy. However, the by-product of such ultra-loose easing policy is that it has expanded the wealth inequality gap significantly at a global scale. Secondly, fundamental discordance. A significant deterioration in the value of money has forced market participants to invest in riskier markets in order to maintain a similar level of expected return.
Subsequently, asset prices and financial market fundamentals have deviated significantly from each other. Thirdly, political uncertainty. The rise of China has been presenting a challenge to the US in recent years, while COVID-19 has intensified this challenge, reflected through not only trade disputes but also sanctions. History has taught us that these three factors can lead to social unrest and vulnerability in financial markets. Such concerns can persist with an uneven global economic recovery as well as monetary policies that have differentially benefited people in different wealth tiers, rather than the majority of the global population. We continue to position the Fund with the expectation that asset prices across the risk spectrum will continue to increase should monetary policy remain extremely accommodative. Secondly, in this context, asset price behaviour can continue to deviate from the real economy. Thirdly, tail risks in asset prices have increased due to wealth inequality, fundamental discordance, and political uncertainty. Putting these altogether, we have positioned the Fund with a moderate growth orientation.
Furthermore, we continue to look to increase our growth assets allocation should valuations improve further, while utilising cost-efficient, out-of-the-money put options during periods of low volatility to mitigate against the risk of sudden market shifts. Within our growth asset allocation, we maintained an underweight position in European equities against an overweight bias to domestic and US equities. We view further fiscal and monetary support from the European Union as less likely than the US whilst the economic fundamentals remain extremely impaired.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Macquarie-Multi-Asset-Opportunities-Fund-Performance-Report-PRRP-MAO-ANZ.pdfDecember, 2020
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Macquarie-Real-Return-Opportunities-Fund-Performance-Report-PRRP-MAO-ANZ-2.pdfasset_class: Multi-Asset
asset_category: Real Return
peer_benchmark: Multi-Asset - Real Return Index
broad_market_index: Multi-Asset Growth Investor Index
manager_contact_details: Array
ticker: MAQ3069AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://mim.fgsfulfillment.com/download.aspx?sku=PRRP-MAO-ANZ
fund_features:
The Fund aims to provide positive returns of 3% to 5% per annum above Australian inflation over the medium term (before fees). It also seeks to provide regular income.
structure: Managed Fund