Fund Update – April 2024
Australian equities fell in April as market participants began anticipating the possibility of further rate rises. The shift in interest rate expectations pushed up real yields and drove a correction in rate sensitive stocks. From a sector perspective, Gold was once again the best performer, followed by Utilities which benefited from a rise in power prices. Real Estate was the worst performer, largely reversing gains in the prior month. Value stocks outperformed growth stocks, as the rise in bond yields created a larger headwind for more expensive stocks that rely on long dated revenue streams.
Attribution:
The State Street Australian Equity Fund outperformed the S&P/ASX 300 Index during April1. Sector wise, being overweight Utilities (AGL and Origin Energy) and good stock picking within Staples (Graincorp) were key contributors. Conversely, having a higher than benchmark exposure to Industrials (Brambles) and a lower than benchmark exposure to Materials (not holding South32) were key detractors from relative performance.
Notable changes during the month:
We implemented a small amount of turnover in April, resulting in an increase in overall exposure to Financials and Industrials - funded by a reduction in Materials and Health Care. Our largest buy was QBE, which provides great risk-adjusted returns with one the lowest level of volatility within Financials. In addition, QBE provides extensive geographical revenue exposure across US, UK, Canada, China and other markets. Recent improvement in Sentiment scores has provided an attractive entry point for us. Within Health Care, we sold our position in Sonic HC on the back of falling sentiment and quality scores; as analysts revised down earnings and profitability fell notably after the Covid peak.