The Fund generated a -7% return in the month of June and -10.4% for the June quarter. By way of comparison, the (annual) return of the RBA cash rate +6% equated to approximately +0.5% for the month (+1.6% quarter), whilst the Australian stock market declined by -9.4% in June and -12.9% for the quarter. For the 2022 financial year, the Fund’s total return equated to -12%, compared to the market return of -7.4%, and a cash rate +6% of +6.2%.
The Fund enjoyed a relatively strong start to the financial year in the September quarter however, as we wrote at the time, we were somewhat surprised given our observations of an increasingly difficult environment to protect capital whilst generating a sufficient return. By December our concerns were already coming to fruition and the new calendar year brought with it the ultimate inflection point… the final emergence of inflation and the end of an extended downward cycle in global interest rates, compounded by the unexpected war in Eastern Europe and subsequent imbalances to the global economic order.
As we entered the new calendar year, the Fund was positioned strategically to manage our assessment of risks associated with inflation and rising rates. Whilst a number of these strategies paid off, they were not enough to offset the broader market weakness, and we discuss below some reflections from this difficult period in equity markets.
Looking forward, we continue to plan for an environment where the cost of money is once again going up whilst the availability of money is going down, a troubling formula for investing in long duration assets.
We remain as focused as ever on our primary objectives of capital preservation and generating a reasonable real return for our investors. We continue to believe this is best served by a disciplined approach and consistent investment methodology. A variety of good businesses run by honest and competent management teams at the right price will create a well-diversified portfolio of ever-growing cash earnings streams.