The Fund generated a -1.1% return in the month of October. By way of comparison, the (annual) return of the RBA cash rate + 6% equated to approximately +0.5% for the month and the Australian stock market rose by 0.1%.
As we have highlighted in previous months’ reports, we have been positively surprised by the Fund’s strong start to the financial year in the September quarter, given our view that protecting capital and generating a sufficient return in this environment is difficult. So it proved in the month of October, during which the Fund gave up some of the gains of the previous months. Whilst the 2 main detractors in October have their own specific circumstances (e.g. Smart Group bidders withdrew their takeover offer), it does re-enforce our cautious view.
From a macro perspective, markets digested further evidence of rising inflation and increased their expectations for the timing and pace of interest rate hikes. We discussed our anticipation of this scenario and how we are managing the portfolio to protect capital and benefit in this market environment in our recent webcast.