During December 2020 the Fund returned 2.11% versus the S&P/ASX 300 Accumulation Index of 1.32%, outperforming the market by 0.79% (after fees). Overweight positions in Renewable Energy and Transition Commodities and an underweight position in Healthcare contributed to relative performance while an overweight position in Food Products and an underweight position in Information Technology detracted from relative performance.
Globally, fiscal policy is now the primary source of stimulus as monetary policy has been exhausted with near zero interest rates. This has led to massive increases in government debt as extreme measures were used in 2020 to combat COVID-19. US government debt to GDP for example is now the highest since WWII, a point from where interest rates started to rise, coinciding with the increase in financial leverage.
Despite central banks’ record-low interest rate policies, there has been a steady upward movement of the key US 10 year bond yield since August 2020. And equity markets have also risen, driven by a broader sample of stocks, contrasting then arrow markets of the last few years.
Through the end of 2020 stock valuations remain relatively high, reflecting low interest rates, but speculative activity is rampant in some parts of the market and can be seen globally in penny stocks, which is spilling over to other unprofitable companies, particularly in technology related areas. But despite this activity, or partly because of it, share prices of slower growing and higher cash flow companies remain near multi-year lows. The gap between the highest rated companies and the lowest rated companies is the widest on record.
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During February 2022 the Fund returned 1.87% versus the S&P/ASX 300 Accumulation Index of 2.09%, underperforming the market by 0.21%. Over the past 12 months the Fund has returned 14.7%, outperforming its benchmark by 4.45% (after fees).