Realindex Global Share Hedged-Class A (FSF0975AU) Report & Performance

Realindex Global Share Value (Hedged) returned -2.12% (net of fees) during May, versus the MSCI All Countries World ex Australia Net Index Hedged which returned -0.32% (in AUD). The AUD fell 2.1% against the USD over the month.

Global equity markets were generally weaker in May following uncertainty around the US government default and rising bond yields following further rate rises by the Federal Reserve. Despite a resolution to the US government debt ceiling and generally positive economic data, US equity markets failed to make strong returns with the exception of a select number of large cap Information Technology names amid growing expectations of the future potential of AI. This contrasted with Energy and Materials stocks, which were among the weakest performers in May amid concerns over the demand outlook. Equity market weakness was also seen in Europe, with signs of worsening economic conditions. This was in contrast to Japan, with the Nikkei 225 and TOPIX Index reaching fresh 33-year highs following signs of continued economic recovery. Emerging Markets were also weak, with Chinese equities underperforming following weaker than expected economic data. As a result, Information Technology names posted the strongest gains in May (MSCI ACWI IT: +10.4%), while Energy was the worst performing sector (MSCI ACWI Energy -7.2%).

Within this environment, the strategy underperformed the strength of Growth based names during the month; with Value underperforming Growth by 6.5% (MSCI AC World ex AU Value -2.2% vs. Growth +4.3%, in AUD). Over the past year, Value has underperformed Growth by 13.0% (AUD) and on a five-year basis by 5.6% p.a. (AUD), providing a significant longer-term headwind for performance.

Regionally, much of this underperformance was driven by the underweight positioning to North America, specifically the underweight to a select number of Technology and Technology adjacent names including Tesla, Amazon, Microsoft, Apple and NVIDIA. However, the overweight to Japan offset some of these losses. From a sector perspective, the largest detractor was the underweight to Information Technology, in particular semi-conductors while favourable positioning in Health Care helped performance. The largest stock level detractor was the underweight to NVIDIA Corporation given its strong reported earnings amidst renewed interest in AI related stocks. The largest contributor was the overweight to Meta Platforms, Inc.

Driven by the methodology of rebalancing further into cheap Value companies, the portfolio continues to sit on deep valuation discounts. At the end of May 2023 the portfolio reflected a 54.0% dividend yield premium to the MSCI ACWI ex AU index, whilst trading at a 25.6% price to book discount, a 31.7% price to cashflow discount and 37.3% price to sales discount. The emerging markets portion of this strategy sits at even deeper discounts, indicating that the portfolio remains well positioned for mean reversion in Value.

Realindex Global Share Value (Hedged) returned +1.96% (net of fees) during April, outperforming the MSCI All Countries World ex Australia Net Index Hedged which returned +1.34% (in AUD). The AUD fell 1.3% against the USD over the month.

Global markets were mixed amidst persistent inflation which continued to pose a challenge to central banks. US stocks made limited gains in April led by large caps, as investor optimism resulting from the Fed’s anticipated moderation of monetary policy was tempered by concerns over economic growth.

Uncertainty in the banking sector also continued with the collapse of First Republic bank. In Europe, equity markets advanced on the back of positive corporate earnings. Japan’s stock markets gained due to the Bank of Japan signalling policy continuity and upgrading inflation forecasts, while China reaffirmed its supportive policy stance for the economy amidst growing exports and consumer demand. Despite this, China’s equity market continued to underperform in April, leading emerging markets lower as concerns over its political stance on Taiwan, relationship with Russia and ongoing regulations with the private sector still weigh on investors.

Overall, global equity markets gained in April, led largely by developed markets with the MSCI ACWI Index posting +2.8% in AUD terms. This was led by Energy (+5.5%) and Consumer Staples (+5.2%). IT and Consumer Discretionary names were the laggards for April each posting +0.7% and +0.5% respectively.

In this environment Value stocks outperformed Growth stocks by 0.7% over the month (MSCI AC World ex AU Value +3.2% vs. Growth +2.5%, in AUD). Over the past year Value has outperformed Growth by 1.4% (AUD), while on a five year basis Growth has outperformed Value by 5.0% p.a. (AUD), providing a significant longer-term performance headwind. As such, the portfolio benefitted especially from its Value positioning in Emerging Markets as Value stocks (MSCI EM Value) outperformed Growth (MSCI EM Growth) stocks by more than 3% for the month.

Realindex Global Share Value (Hedged) returned -1.00% (net of fees) during February, outperforming the MSCI All Countries World ex Australia Net Index Hedged which returned -2.02% (in AUD). The AUD fell 4.3% against the USD over the month.

Global markets were mixed in February, with stronger performance in Developed Markets, in particular Europe, and weaker returns in Emerging Markets (EM). A warmer European winter along with their ability to diversify energy imports have meant a fully-fledged energy crisis has not materialised. This, along with China’s reopening, has brought a degree of softening or cautious optimism in the global economy. In short, we have witnessed a degree of global resilience. However, this also means inflationary concerns will remain persistent, with the Federal Reserve likely to continue its hawkish stance. Bond yields have risen as a result, with a strong degree of inversion between the 2 and 10 year yields. In the MSCI All Countries World Index, IT (+4.1%) and Industrials (+3.3%) were the best performing sectors, while Materials (-1.6%) and REITs (-1.5%) struggled throughout the month.

Within this environment, Value underperformed Growth by 0.6% over the month (MSCI AC World ex AU Value +1.3% vs. Growth +1.9%, in AUD). Over the past year, Value has outperformed Growth by 11.0% (AUD), while on a five year basis Growth has outperformed Value by 3.4% p.a. (AUD), providing a significant longer-term headwind for performance.

The fund outperformed the benchmark due to strong stock selection within EM (+23bps) and Europe (+23bps), while in general the largest detractor was the overweight to Developed Asia. Stock selection within Communication Services was also a strong contributor (+24bps) and largely attributed to the overweight in Meta Platforms. Overall, the largest detractor was the underweight Information Technology, with household names such as NVDIA Corporation, Microsoft, Tesla and Apple posting strong gains for the month.

Driven by the methodology of rebalancing further into cheap Value companies, the portfolio continues to sit on deep valuation discounts. At the end of February 2023 the portfolio reflected a 47.8% dividend yield premium to the MSCI ACWI ex AU index, whilst trading at a 24.8% price to book discount, a 34.8% price to cashflow discount and 35.7% price to sales discount. The emerging markets portion of this strategy sits at even deeper discounts, indicating that the portfolio remains well positioned for mean reversion in Value

Note: Returns in parenthesis show the total return for the month ending 28 February 2023. All returns are given in local currency terms unless otherwise stated.

Realindex Global Share Value (Hedged) returned +5.97% (net of fees) during January, versus the MSCI All Countries World ex Australia Net Index Hedged which returned +6.23% (in AUD). The AUD rose 3.9% against the USD over the month.

Global markets were off to a solid start in January as falling inflation, relatively robust economic data, and China’s COVID policy change, drove investor hopes of a “soft landing” for the global economy. Equities, bonds and alternatives generally rose on the back of this renewed optimism while bond yields declined and equity market volatility fell to its lowest level in almost a year. The MSCI All Countries World Index posted 3.1% in AUD terms, led by strong performance from key countries such as the United States and China. The S&P 500 posted over 6% in local terms and China due to the improved economic momentum and confidence performed well, both onshore (CSI 300 Index +7.3%) and offshore (Hang Seng Index +10.4%). Growth oriented sectors performed well with Consumer Discretionary (+9.8%), Communication Services (+8.9%) and Information Technology (+6.3%) leading the way. Whilst, Value oriented defensive sectors such Health Care (-4.2%), Utilities (-3.9%), Consumer Staples (-2.5%) and Energy (-0.9%) underperformed.

Within this risk on market environment, Value stocks underperformed Growth stocks by 4.5% over the month (MSCI AC World ex AU Value +0.9% vs. Growth +5.4%, in AUD). Over the past year Value has outperformed Growth by 12.6% (AUD), while on a five year basis Growth has outperformed Value by 3.7% p.a. (AUD), providing a significant longer-term performance headwind.

Despite the underperformance of Value indices, the fund managed to perform roughly in line with the benchmark. This is largely due to positive allocation effects in Europe which the fund was overweight and good stock selection in the US which the fund was underweight. Regionally, the largest contributor was the underweight to North America and the largest detractor was the overweight to Emerging Markets. From a sector perspective, the largest contributor from an asset allocation viewpoint was the underweight to Health Care, while Financials generated the largest contribution; largely from stock selection. The underweight to Information Technology was the largest sector detractor due to both poor stock selection and allocation effects. The largest stock level contributor was the overweight to Meta Platforms, Inc. and the largest stock level detractor was the underweight to Tesla, Inc.

Driven by the methodology of rebalancing further into cheap Value companies, the portfolio continues to sit on deep valuation discounts. At the end of January 2023 the portfolio reflected a 51.6% dividend yield premium to the MSCI ACWI ex AU index, whilst trading at a 28.1% price to book discount, a 35.1% price to cashflow discount and 35.9% price to sales discount. The emerging markets portion of this strategy sits at even deeper discounts, indicating that the portfolio remains well positioned for mean reversion in Value.

Realindex Global Share Value (Hedged) returned +9.98% (net of fees) during the December quarter, outperforming the MSCI All Countries World ex Australia Net Index Hedged which returned +7.03% (in AUD). The AUD rose 5.5% against the USD over the quarter.

Overall the MSCI ACWI Index was down 12.5% in 2022, with both global equities and bonds declining against a surge in inflation, slowing economic growth, geopolitical tensions and monetary tightening. US equity markets had a mixed final quarter despite lower-than-expected inflation and signals that the Federal Reserve may slow the pace of rate increases. In response, the S&P 500 rose almost 2.0%, constrained by end of year sell-offs in Technology and Consumer Discretionary names, while in Europe, shares rose strongly on signs of slowing inflation and potential policy easing by central banks. In China, stocks were largely flat as Beijing moderated its zero-tolerance approach to COVID-19, but economic activity was disrupted by Covid outbreaks.

The MSCI All Countries World Index rose 4.1% for the quarter led by strong performances in Energy (+11.7%) and Industrials (+11.4%), while Consumer Discretionary (-5.9%) and Communication services (-2.9%) lagged for the quarter. With this backdrop, the fund strongly benefitted from Value stocks which outperformed Growth stocks by 8.5% over the quarter (MSCI AC World ex AU Value +8.2% vs. Growth -0.3%, in AUD). Over the past year Value has outperformed Growth by 22.6% (AUD), while on a five year basis Growth has outperformed Value by 3.1% p.a. (AUD), providing a significant longer-term performance headwind.

Regionally, the largest contributor to performance was the underweight to North America with stock selection being the most significant driver contributing over 260bps, while the largest detractor was the overweight to Developed Asia, though the detraction relatively small in comparison. From a sector perspective, the fund’s largest contributor was the overweight to Consumer Discretionary though much of this was driven by stock selection effects; in particular the underweight to Tesla Inc. The largest sector detractor was the overweight to Consumer Staples again driven by stock selection effects though the detraction was small by comparison. The fund’s largest stock level contributor was the underweight to Tesla Inc, while the largest stock level detractor was the overweight to Meta Platforms, Inc.

Driven by the methodology of rebalancing further into cheap Value companies, the portfolio continues to sit on deep valuation discounts. At the end of December 2022 the portfolio reflected a 52.0% dividend yield premium to the MSCI ACWI ex AU index, whilst trading at a 26.4% price to book discount, a 33.3% price to cashflow discount and 36.7% price to sales discount. The emerging markets portion of this strategy sits at even deeper discounts, indicating that the portfolio remains well positioned for mean reversion in Value.

Realindex Global Share Value Hedged returned +6.80% (net of fees) during November, outperforming the MSCI All Countries World ex Australia Net Index Hedged which returned +6.04% (in AUD). The AUD rose 4.7% against the USD over the month.

With signs that global inflation may be easing in November, global equity markets were boosted by speculation that interest rates in key regions may not need to be raised significantly. The MSCI World Index rose 5.7%, although the gain was lower in AUD terms due to the strength of the Australian dollar. In the United States and Europe, major indices such as the S&P 500 (+5.4%), NASDAQ (+4.4%) and Euro Stoxx 50 (+9.6%) registered solid gains. However, Asian markets took the lead with strong returns from the CSI 300 (+9.8%) and Hang Seng (+26.6%) due to optimism around potential relaxation of China’s COVID restrictions. In Developed Markets, Materials (+8.9%) and Industrials (+4.1%) within the MSCI World index led performance, while Energy lagged (-1.5%) following falls in Oil prices in November. The strength in Emerging Markets was most seen in Real Estate (+29.6%) and Consumer Discretionary (+20.1%) while the weakest sector was Utilities (+2.3%).

Value stocks outperformed Growth stocks marginally by 0.1% over the month (MSCI AC World ex AU Value +2.8% vs. Growth +2.8%, in AUD). Over the past year Value has outperformed Growth by 25.0% (AUD), while on a five year basis Growth has outperformed Value by 3.7% p.a. (AUD), providing a significant longer-term performance headwind.

The fund benefitted from the underweight to North America though stock selection within the United States and was a key contributor to performance. The overweight to Europe contributed the least to performance largely due to stock selection effects. From a sector perspective, the largest contributor was the overweight to Financials and the largest detractor was the overweight to Consumer Staples, both the result of stock selection effects. The largest stock level contributor was the underweight to Apple Inc. and the largest stock level detractor was the exclusion of NVIDIA Corporation.

Driven by the methodology of rebalancing further into cheap Value companies, the portfolio continues to sit on deep valuation discounts. At the end of November 2022 the portfolio reflected a 55.8% dividend yield premium to the MSCI ACWI ex AU index, whilst trading at a 26.9% price to book discount, a 32.8% price to cashflow discount and 36.8% price to sales discount. The Emerging Markets portion of this strategy sits at even deeper discounts, indicating that the portfolio remains well positioned for mean reversion in Value.