The Fund generated a -2.3% return in December. 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 declined by -3.3% over the month. For the 6 months ended December 2022, the Fund generated a return of +3.1%, compared to the benchmark of RBA cash rate plus 6% return of +4.1% and the Australian stock market return of 9.7% over the same period.
From the outset we wish to be clear that we are disappointed with the returns from the Fund for the financial year to date which, whilst positive, are below our targeted return for the period, and further lagged a strong, resource driven market.
In terms of positioning going forward, despite the economy remaining stronger for longer than many had anticipated, we continue to retain a level of caution in our outlook for 2023. We have worked hard to improve the liquidity of the Fund, and retained a focus on well managed defensive cash generators. Cash levels have continued to rise and at c15% at December 22, are at their highest levels in the Fund for some time. Furthermore, we continue to have active protection from puts in the portfolio (cost absorbed in the 1H23 performance), and will continue to assess our levels of protection in the near term. Notwithstanding a strong period from energy and resource stocks, we have observed the negative impact of the higher cost of money on valuations of long duration assets, and believe that dynamic will likely continue in the medium term. That said, we remain hungry for opportunities to deploy cash and believe those opportunities may present in coming months, as households reassess their budgets post-Christmas, taking into account the delayed onset of higher monthly mortgage repayments and rising costs of living. Having the cash readily available and protection active in the portfolio gives us both the confidence and ability to move when we assess the time is right.