The Fund generated a -0.1% return in the month of August. By way of comparison, the (annual) return of the RBA cash rate + 6% equated to approximately +0.7% for the month, whilst the Australian stock market improved by +1.3% over the month.
The market performance in August was again driven entirely by the Materials and Energy sectors, together making up 140 bps of the markets overall 130bps gain – i.e. the market performance ex materials and energy was therefore negative in August. Strength early in the month quickly abated following hawkish comments from the Federal Reserve re-igniting fears that central banks may be more aggressive in their efforts to contain inflation by raising rates.
Notwithstanding a range of share market reactions to results, for the most part we were pleased with the recent reporting season, with our investment thesis for positions throughout the portfolio largely confirmed. That said, strength in trading to June 30 has given way to a more uncertain and challenging outlook, and forecast error remains high.
Volatility has returned in September, and the fund is benefiting from our lower equity exposure (cash levels continued to rise through August), as well as an increase in the value of the put position in the portfolio.
Despite an elevated level of volatility in markets, 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.