SUMMARY
- The Fund generated a +1.9% return in June and +4.1% for the June half.
- By way of comparison, the (annual) return of the RBA cash rate plus 6% equated to approximately +0.8% for the month and +5.0% for the half, whilst the Australian stock market returned +0.7% in June and +4.2% for the half.
- For the 2023/24 financial year, the Fund’s total return equated to +8.6%, compared to the market return of +12.5%, and a cash rate plus 6% return of +10.2%.
Despite the recent rising interest rate environment, we remain confident in the strategy, which, over the sixteen years since inception, has delivered a superior outcome for our investors of +8.6% p.a. after all fees and charges. This exceeded our stated objective of the RBA cash rate plus 6% benchmark return (8.5%) over the same period, remembering that the RBA Cash rate represents a useful proxy for domestic inflation with a 6% premium for equity risk. Importantly this was achieved against the backdrop of a volatile market which generated significantly less at +6.9%pa over the same period.
We are cognisant of the Fund’s comfortably positive but more subdued performance of late. However, we remain convinced that the negative impacts from central bank experiments with quantitative easing, deeply negative real interest rates and ever expanding fiscal deficits are still to play out. Importantly, while we may not be in the final innings of this monetary super cycle, our caution around the combination of investors pursuing the “next best thing” with surplus liquidity, heightened geopolitical risks, the mismatch between commercial property capitalisation rates and borrowing costs and the potential for persistent inflation has heightened our focus on capital preservation. It is at times like these that a focus on strong business models, backed by healthy cash generation and stewarded by competent management comes to the fore.