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28 Jul 2023 - Hedge Clippings | 28 July 2023

By: FundMonitors.com

    

Hedge Clippings | 28 July 2023

One of the difficulties of including the topics of inflation and interest rates in a weekly commentary is that in recent times it has been difficult to avoid the subject, even if it does end up becoming a tad tedious - quite possibly for both the author and recipients! This week therefore we'll cover it briefly before moving onto managed funds and peer group performances.

True to our previous expectations, this week's June CPI figures (+0.8% for the quarter, and 6.0% over 12 months), provided some positive indications for inflation, and thus for next week's decision on interest rates. Wednesday's figures at least justified the RBA's July pause, and should herald a further pause next Tuesday. It's too early to claim the inflation battle has been won, and further "stickiness" could well trigger calls for another rise, but the June quarter figure of just 0.8% (annualised at 3.6%) is the lowest since, or equal to, the quarterly result for the June quarter of 2021. All this with historically low unemployment, and a strong labour market.

The RBA's current cash rate of 4.1% (assuming it doesn't rise next week) is well below US rates, which rose again by 0.25% to 5.25 to 5.5% this week, as did European rates, while the UK's rate is at 5%, and is expected to touch 6%. The previously much maligned Philip Lowe looks to have been vindicated for his "narrow path" approach, balancing the fight against inflation with the need to keep the economy running, and with as close to full employment as possible.

However, don't expect the RBA to take their foot off the pedal too quickly, and certainly don't expect any forecasts when that may happen from incoming RBA governor Michele Bullock. While overseas central banks are still increasing rates in an attempt to put the final nail in their inflationary coffin, Australia may have to accept 4.1% for a while longer yet to ensure the RBA's 2-3% target is secure.

Moving right along... to fund performance:

Inevitably, at the individual fund level the results over the past year or so have been varied. Over the six months to June, 58% of equity based funds outperformed the ASX200, while over twelve months that number dropped to just 8.1%, indicating how difficult many managers found 2022 as central banks grappled with unexpected inflation, and Russia invaded Ukraine.

However, all but one of the 17 Peer Groups that make up the Fund Monitors database of 700+ managed funds recorded a positive result in June, and also over the previous three and six months. The exceptions were Fixed Income - Bonds (-0.48% in June, and -0.50% for three months) and Property (-0.32% over six months). However, over one year to the end of June, all Peer Groups (averages) were in positive territory, with Equity Long, both Large and Small Cap, and Australian and Global, all returning 10% or more. Digital Assets topped the twelve month list at 32.64%, having recovered from their (very) average 12 month return of -48.68% to December 2022.

Looking at comparative Peer Group performances on a broad consistency basis (in other words, no drawdowns over both the short or longer term), the standouts have been Equity Alternatives, Alternatives, Fixed Income, and Hybrid Credit. Full details (registration required) can be found here.

Finally, next Tuesday at 4.15 PM AEST we are running the latest of our webinar series, featuring three managers investing in Infrastructure assets. Register here or below to join AFM's COO Damen Purcell, as he delves into the opportunities and risks of infrastructure investing with Sarah Shaw from Bennelong's 4D Infrastructure, Ben McVicar from Magellan's Infrastructure Fund, and Matt Lorback from Atlas Infrastructure.


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