AMP Capital Equity Income Generator (AMP1905AU) Report & Performance

Australian equities continued to decline in June, with the S&P/ASX 200 and S&P/ASX 300 Accumulation Index finishing the month down -8.80% and – 9.11% respectively, as tighter monetary policy pushed up real yields and pressured valuations. Investors flocked to defensive assets amid growing concerns of a global recession. Consumer Staples (+2.2%) was the only sector with a positive return for the period, as investors sought names with defensive characteristics including Endeavour Group (+4.3%), Woolworths (+2.7%) and Coles (+1.6%). Materials (- 12.4%) was the worst performing sector, as weaker commodity prices saw resources companies underperform. Gold producers fell sharply, with Evolution Mining (-38%) down after downgrading production guidance and warning of higher costs, which impacted other gold companies

April proved a weak month for global equities more broadly, as rising inflation fears fuelled concerns of a slowdown in economic growth. This was highlighted by large declines in US equities, as the US Federal Reserve (Fed) hiked interest rates which pressured equity valuations. While modestly down, Australian equities showed resilience and outperformed global equities for the third month in a row. Utilities (+9.3%) was the best performing sector as investors sought more defensive assets, this also led to transport (+5.4%) and insurance (+5.2%) outperforming. Technology (-10.4%) was the worst performing sector, as it still has the highest valuations and is impacted most by the rise in bond yields. Block Inc (SQ2, -21.7%) and WiseTech Global (WTC, -11.4%) posted double digit falls after performing strongly in Q1. A key reason Australian equities are outperforming the US this year is the smaller technology weighting in ASX indices. Health care (-2.5%) and consumer discretionary (-4.2%) also underperformed.

April proved a weak month for global equities more broadly, as rising inflation fears fuelled concerns of a slowdown in economic growth. This was highlighted by large declines in US equities, as the US Federal Reserve (Fed) hiked interest rates which pressured equity valuations. While modestly down, Australian equities showed resilience and outperformed global equities for the third month in a row. Utilities (+9.3%) was the best performing sector as investors sought more defensive assets, this also led to transport (+5.4%) and insurance (+5.2%) outperforming. Technology (-10.4%) was the worst performing sector, as it still has the highest valuations and is impacted most by the rise in bond yields. Block Inc (SQ2, -21.7%) and WiseTech Global (WTC, -11.4%) posted double digit falls after performing strongly in Q1. A key reason Australian equities are outperforming the US this year is the smaller technology weighting in ASX indices. Health care (-2.5%) and consumer discretionary (-4.2%) also underperformed.

Australian shares bucked the global trend of market falls in February, with the S&P/ASX 200 index rising 2.14%, on a total-return basis for the month.

Reasons for the relative optimism likely included a comparatively dovish central bank still sounding cautious on future rate rises; geographic isolation and lack of significant direct economic ties to Russia; strong commodity prices strengthening Australia’s terms of trade and continued economic reopening; and social and border restrictions being rolled back further during February.

Inflation, which is arguably still the prime market concern in Australia and overseas, remains elevated, though is currently lower than in many other advanced economies. Corporate earnings reports were also generally strong in February, with dividends rising and outlook statements becoming somewhat clearer. At a sector level, materials and energy stocks were strong performers as commodity prices continued to swell. Information technology stocks meanwhile were weak on the back of negative sentiment emanating from global markets.

Australian shares fell in January, with the S&P/ASX 200 index returning -6.35%, on a total return basis. The pullback was driven by global markets, which experienced a marked bearish turn of sentiment amid compounding inflationrelated fears, particularly with regard to interest rate normalisation against a background of record high debt levels. Meanwhile, the Reserve Bank of Australia has signalled an impending end to its quantitative easing program, while it weighs up when to initiate rate hikes. The COVID-19 pandemic appears to be having a diminishing impact on shares, with some light at the end of the tunnel apparent as a number of overseas nations have begun to drop all virus-related restrictions.

While most sectors were negative for the month, information technology had a particularly tough time on the back of a global selloff of the segment, particularly given the growth-dependant nature of many of these businesses, in many cases combined with high earnings multiples. Utilities unsurprisingly saw some strength given the turn away from growthfocussed stocks, although energy stocks were the top performers against a background of continued strong demand, along with a falling Australian dollar.

Despite a strong international lead, Australian shares range-traded for much of the December quarter against a backdrop of mixed sentiment, before a small Santa Claus rally at year-end led the S&P/ASX 200 index to finish up by 2.09% on a total return basis with our fund strongly outperforming that. Economic data released throughout the quarter was generally consistent with a strong bounce-back following the removal of various Delta-wave lockdowns and restrictions prior to the period, though inflation continued to rise. The latest new COVID-19 variant, Omicron, meanwhile added uncertainty, though state governments have so far been somewhat more restrained with reintroducing restrictions amid high vaccination rates, as well as growing fatigue towards restrictions in general from the public. Given the global inflationary environment, speculation on future interest rate rises was a theme, which impacted sentiment towards some sectors. At a sector level, materials and utilities were the clear outperformers, likely owing respectively to rising commodity prices and a growing search for shelter from inflation. Energy and information technology (IT) meanwhile pulled back over the period, as some pessimism spilled over from global markets amid ongoing supply constraints as well as some specific overseas IT company issues