June, 2023
The Australian share market posted relatively flat returns over the June 2023 quarter. The S&P/ASX200 Total Return Index (‘market benchmark’) returned 1.01% and the MLC Australian Share Fund returned 1.03% (before fees and tax) outperforming the market benchmark by 0.02%.
The fund over one year returned 15.71% (before fees and tax) to 30 June 2023. This was 0.93% better than the market benchmark’s 14.78% return and was due to the strong outperformance from two of our appointed managers, Northcape and Antares.
The ASX 200 lagged global markets over the quarter as the strong lead from overseas was tempered by somewhat unexpected Reserve Bank of Australia (RBA) interest rate hikes which made investors more cautious. The drivers in the June quarter were similar to those which have played out for most of this year, with Technology and Consumer stocks doing much of the heavy lifting as investors attempt to put a value on ‘Artificial Intelligence’ (AI) and assess any productivity gains this technology might produce. Materials were weaker in line with lower commodity prices and consumer facing sectors also struggled as interest rates continue to bite.
China’s disappointing economic performance continued to weigh on emerging markets and contributed to relative weakness in here given the exposure of our mining sector to China’s tepid growth. There was little joy for the miners, as commodity prices were generally lower over the period. Oil was down 6%, Coal -27%, Iron Ore -11%, Zinc -19%, Nickel -14%, Aluminium -11%.
From a sector perspective, there are few clear winners in the current environment. Consumer-exposed sectors, other than perhaps supermarkets, are seeing broad-based weakening. Banks are facing higher funding costs, slower credit growth and potentially higher credit losses while, for Resources to perform, China would likely need to meaningfully step up its stimulus measures – something its government to date has been unwilling to do.
The upcoming August reporting season should provide further insights into the extent of the economic slowdown the RBA has tried to orchestrate since the current interest rate tightening cycle started in May last year.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Fund-Profile-Tool-Fund-Commentary-MLC2.pdfMarch, 2023
The Australian share market posted reasonable returns over the March 2023 quarter. The S&P/ASX200 Total Return Index (market benchmark) returned 3.5% and the MLC Australian Share Fund returned 5.2% (before fees and tax) outperforming the market benchmark by 1.7%.
The fund over one year returned 1.7% (before fees and tax) to 31 March 2023. This was 1.6% better than the market benchmark’s 0.1% return and was due to the strong outperformance from two of our appointed managers, Northcape and Antares.
As mentioned earlier, the Australian share market delivered positive returns, rising alongside both its developed and emerging markets peers. The quarter had a particularly strong start in January as investors focused on easing inflationary fears and hopes that central banks could start slowing their pace of interest rate hikes. Iron ore prices also rebounded in January, rising on the expectation of an improving Chinese economy in 2023 following the removal of COVID restrictions in December, but paused for breath towards the end of the quarter as investors looked for evidence of the strength of China’s economy following its re-opening.
Most sectors were positive with Consumer Discretionary performing strongly, up 11.4%, driven by investors’ willingness to take on more risk and some strong individual performances followed by Communication Services (9.4%) off the back of Telstra’s strong performance. Financial Services was the weakest, down 2.7%, on worries about the unfolding banking crisis and mortgage competition. The real estate sector was one of the weaker performing sectors over the quarter. This mirrored the sell-off in property names in other markets including the US and Europe as investors worried that the turmoil in the US banking sector could tighten access to credit and put property prices under further pressure.
Please refer to the ‘Market commentary’ for an overview of what happened in other domestic and global markets over the quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Fund-Profile-Tool-Fund-Commentary-MLC-Global-Share.pdfDecember, 2022
Over the three months to 31 December 2022, the fund generated a very strong return of 5.7% (before fees and tax). This return was 1.6% above the benchmark MSCI All Country World Index ($A). Over the year, the fund delivered a disappointing return of -11.9%.
2022 was a year dominated by large scale events and trends, from the invasion of Ukraine in February to sharp interest rate increases and inflation across major economies, Chinese-US tensions, unrest in Iran and pivotal elections in the US and elsewhere. In the final quarter of the year, financial markets were becoming more resilient to inflation and interest rate risks with strong returns in global shares.
The Australian dollar increased relative to the US dollar over the quarter. As a result, not being hedged to the Australian dollar detracted for global share investors over this period.
Of the four managers in the fund, for the full quarter, three managers outperformed over the quarter, with positive stock selection being the predominant driver of relative outperformance. During the quarter, Tweedy Browne and Kiltearn were replaced by Royal London and Pzena.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Capture.jpgSeptember, 2022
The fund returned -2.2% for the quarter and -11.7% in the year to 30 September 2022 (before fees and tax). The fund performed in line with the benchmark return for the quarter and outperformed by 0.3% over the past year.
Global government bond yields continue to rise sharply given inflation concerns. High commodity prices, persistent supply disruptions and increasing wage pressures have been the key drivers for rising bond yields. The Russian-Ukraine conflict since February 2022 has only intensified these inflation concerns.
Corporate bonds have also proven sensitive to expectations for higher interest rates in coming years, as well as the potential for slower economic activity and reduced corporate profitability. Credit spreads have accordingly widened significantly in response to these negative expectations.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Screen-Shot-2022-10-30-at-03.17.11.pngJune, 2022
Over the three months to 30 June 2022, the fund generated a weak return of -7.2% (before fees and tax). This return was 0.7% above the benchmark MSCI All Country World Index ($A). Over the year, the fund delivered a weak return of -9.6%.
June concluded the worst first-half year for share markets in decades, with the US share market, as measured by the S&P 500 index, declining by 20.1% in local currency terms. Rising inflation and interest rates, supply chain woes intensified by ongoing zero-Covid measures in China, and the Russian invasion of Ukraine have sent a wave of uncertainty across the global economy.
The Australian dollar decreased relative to the US dollar, euro and pound sterling over the quarter. As a result, not being hedged to the Australian dollar was beneficial for global share investors over this period.
Of the six managers in the strategy, four managers outperformed over the quarter, with positive stock selection being the predominant driver of relative outperformance.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/juni-2-1.jpgMarch, 2022
Over the three months to 31 March 2022, the fund generated a weak return of -9.3% (before fees and tax). This return was 0.9% below the benchmark MSCI All Country World Index ($A). Over the year, the fund delivered a solid return of 5.9%.
The Russian invasion of Ukraine raised geopolitical uncertainties leading to volatility in global share markets and added to fears of persistently higher inflation. Despite rising interest rates globally, initially helping value stocks, investor focus shifted from valuation to potential demand destruction. Meanwhile, Germany, heavily dependent on Russian oil and gas, reported inflation numbers greater than 7%. Despite this, there have been relatively few profit warnings ahead of the upcoming earnings season, and global share markets rose at the end of the quarter.
The Australian dollar increased relative to the major currencies over the quarter. As a result, not being hedged to the Australian dollar detracted for global share investors over this period.
Of the six managers in the strategy, three managers outperformed over the quarter, with positive stock selection being the predominant driver of relative outperformance.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/MLCMasterKeyInvestmentServiceFundamentals-MLCWholesaleGlobalShareFund-FSP.pdfDecember, 2020
The fund’s return (before deducting fees and taxes) turned sharply upwards, delivering 16.3% in the December quarter. The one year return is still weak, largely due to the significant falls earlier in the year during the “COVID crash” in March.
The exceptional December quarter performance was due largely to positive news that a number of COVID-19 vaccines had been developed. Expectations that the rollout of the vaccine in 2021 would lessen the economic impact of COVID-19 raised company earnings forecasts and led to improved performance by industries and companies closely exposed to the anticipated economic recovery. The more positive market tone was also helped by improved local economic data and a further loosening of monetary policy with the cash rate reduced to 0.1% by the Reserve Bank of Australia. Strength in commodity prices also helped the local share market, with the iron ore price pushing above US$150/t and the price of oil rising sharply.
Even the Financial sector joined in as confidence that Australia’s economic recovery would reduce loan repayment deferrals led to rises in the fund’s holdings in banks.
File:September, 2020
Over the three months to 30 September 2020, the fund generated a return of 2.5% (before fees and tax). This return was -1.4% behind the benchmark MSCI All Country World Index ($A). Over the year, the fund returned 1.5%.
In the March quarter share markets sold off on concerns regarding the spread of the COVID-19 virus. Since then we have seen a recovery in global share markets. While Wall Street surged to record highs in early September given vaccine hopes, various factors weighed on global shares later in September. Firstly and primarily, the virus remains a troubling global threat with new infection cases rising towards 300,000 per day. Secondly, political risk is becoming more prominent, in particular the US Presidential election.
The Australian dollar strengthened relative to the US dollar over the quarter and against trade-weighted currencies. As a result, not being hedged to the Australian dollar detracted for global share investors.
Global share markets continue to be narrowly led, with those companies delivering on earnings growth being handsomely rewarded, while those stocks with any economic sensitivity are being punished.
Of the six managers in the strategy, three outperformed over the quarter, with positive stock selection being the predominant driver of relative outperformance.
A final word on the fund’s positioning as we reflect on the last quarter. We remain comfortable with our positioning. Our growth managers continue to deliver strong excess performance. For our value managers, history suggests that when they own decent businesses so lowly valued, with valuation spreads at extremes, an investment style that is so out of favour and recent performance that has been so unsatisfactory relative to history; the odds are much more in favour of these managers. We are therefore maintaining exposure to value managers.
File:ticker: MLC0261AU
commentary_block: Array
factsheet_url:
https://www.mlc.com.au/fundprofile/flow/fundProfile?execution=e1s3
Select ‘Performance” -> Fund Commentary
release_schedule: Quarterly
fund_features:
MLC Wholesale Global Share Fund aims to outperform the MSCI ACWI Net Index ($A), before fees and tax, over 5 year periods by using investment managers who invest and diversify across many companies listed (or expected to be listed) on share markets anywhere around the world.
- Suitable for investors wanting an actively managed global share portfolio with foreign currency exposure, that’s diversified across investment managers, countries (developed and emerging), industries, and companies.
- Target allocation: 100% global shares.
- Foreign currency exposures will generally not be hedged to the Australian dollar.
manager_contact_details: Array
asset_class: Foreign Equity
asset_category: Large Blend - Multi-Manager
peer_benchmark: Foreign Equity - Large Multi-Manager Index
broad_market_index: Developed -World Index
structure: Managed Fund