hile most equity indices fell over the quarter, the severity and indeed cause of weakness, varied across regions. Rate rise concerns weighed disproportionally on US markets given their higher multiples with the NASDAQ and S&P500 down 9.1% and 4.9%, respectively. Geographic proximity to hostilities alongside economic exposure to Russia/Ukraine appeared to be the only determinant of performance in Europe. With that, the German DAX was the worst performer, down 9.3%, followed by the CAC40, down 6.9%, while the UK FTSE actually finished up 1.8%. In Asia, US de-listing friction, ongoing economic softness, and geopolitical tensions saw the Shanghai Composite fall 11% while Japan’s Nikkei225 was lower by 3.4%.
Quarterly performance also varied significantly on a sector basis. The absolute standout was Energy, up 30% as supply risks and more robust demand saw oil prices rally 40%. Broader commodity price inflation also helped Materials, up 1.5%, while Utilities benefitted from risk-off positioning to finish up 0.8%. In contrast, Consumer Discretionary, Telco and IT all finished down more than 10%. There were plenty of drivers with waning consumer confidence and margin pressure weighing on Consumer stocks, while rate rises, and a few disappointing results impacted the Telco and IT sectors.
The AUD finished up 3% against the USD courtesy of commodity price strength with the Bloomberg Commodity Index up 25%. VIX finished the quarter largely unchanged at 19, having reached a high of 30 in early March following Russian’s invasion of Ukraine. Yields on 10-yr US Treasuries closed at 2.39%, up 88bps since the beginning of the year.
What is Talaria Global Equity Hedged Talaria Global Equity Hedged is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - Currency Hedged Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Talaria Global Equity Hedged has Assets Under Management of 36.97 M with a management fee of 1.32%, a performance fee of 0 and a buy/sell spread fee of 0.5%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the Talaria Global Equity Hedged has returned 0.99% in the last month. The previous three years have returned 9.75% annualised and 8.89% each year since inception, which is when the Talaria Global Equity Hedged first started.
How is risk measured in this investment product? There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Talaria Global Equity Hedged first started, the Sharpe ratio is NA with an annualised volatility of 8.89%. The maximum drawdown of the investment product in the last 12 months is -1.49% and -20.03% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product? Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Talaria Global Equity Hedged has a 12-month excess return when compared to the Foreign Equity - Currency Hedged Index of -12.35% and -3.69% since inception.
Does the investment product produce Alpha over its Peers? Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Talaria Global Equity Hedged has produced Alpha over the Foreign Equity - Currency Hedged Index of NA% in the last 12 months and NA% since inception.
What are similar investment products? For a full list of investment products in the Foreign Equity - Currency Hedged Index category, you can click here for the Peer Investment Report.
What level of diversification will Talaria Global Equity Hedged provide? Talaria Global Equity Hedged has a correlation coefficient of 0.83 and a beta of 0.24 when compared to the Foreign Equity - Currency Hedged Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers? For a full quantitative report on Talaria Global Equity Hedged and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Talaria Global Equity Hedged with the Developed -World Index? For a full quantitative report on Talaria Global Equity Hedged compared to the Developed -World Index, you can click here.
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Performance Commentary - March 31, 2022 While most equity indices fell over the quarter, the severity and indeed cause of weakness, varied across regions. Rate rise concerns weighed disproportionally on US markets given their higher multiples with the NASDAQ and S&P500 down 9.1% and 4.9%, respectively. Geographic proximity to hostilities alongside economic exposure to Russia/Ukraine appeared to be the only determinant of performance in Europe. With that, the German DAX was the worst performer, down 9.3%, followed by the CAC40, down 6.9%, while the UK FTSE actually finished up 1.8%.
In Asia, US de-listing friction, ongoing economic softness, and geopolitical tensions saw the Shanghai Composite fall 11% while Japan’s Nikkei225 was lower by 3.4%. Quarterly performance also varied significantly on a sector basis. The absolute standout was Energy, up 30% as supply risks and more robust demand saw oil prices rally 40%. Broader commodity price inflation also helped Materials, up 1.5%, while Utilities benefitted from risk-off positioning to finish up 0.8%. In contrast, Consumer Discretionary, Telco and IT all finished down more than 10%. There were plenty of drivers with waning consumer confidence and margin pressure weighing on Consumer stocks, while rate rises, and a few disappointing results impacted the Telco and IT sectors. The AUD finished up 3% against the USD courtesy of commodity price strength with the Bloomberg Commodity Index up 25%. VIX finished the quarter largely unchanged at 19, having reached a high of 30 in early March following Russian’s invasion of Ukraine. Yields on 10-yr US Treasuries closed at 2.39%, up 88bps since the beginning of the year.
Against this backdrop, the Fund performed well delivering a total return for the March quarter of 4.10% while the 12 month return was 12.96%. This has been achieved with substantially less market risk.
Performance Commentary - September 30, 2021 Another consequence of rising government bond yields was significant underperformance in rate sensitive, growth equities. This is something of a twist to the usual risk-off playbook as slowing economic prospects usually see investors bidding up for ‘growth’. Given the outsized concentration of growth equities in US markets, it is therefore unsurprising that both the NASDAQ and S&P500 meaningfully underperformed in September, falling 5.3% and 4.8% respectively.
Despite the weakness in the last month, the NASDAQ and S&P500 were broadly flat for the quarter. However, performance in US small caps was weaker with the S&P600 Small Cap Index down 3.1% for the quarter. Major European bourses were also largely flat for the quarter with the FTSE100 up 0.7%, the French CAC up only 0.2% and the German DAX down 1.7%. In Asia, the Nikkei225 was the key standout for the quarter, up 2.3% and remains a stock market we see as offering good value. The Chinese Shanghai Composite was also resilient in the face of growing headwinds, down only 0.6% for the quarter.
On a sector basis, Materials was the worst performer for the quarter, down 6.2%, as industrial production cuts in China weighed on demand and prices for some hard commodifies. In contrast, Financials was the best performing sector on a quarterly basis, up 1.6%, driven by higher long-term rates and a resumption of dividends by European banks. Other sectors which finished the quarter in positive territory included Info Tech, Health Care and Energy
Performance Commentary - June 30, 2021 Consistent with this dynamic, US markets performed strongly during the quarter with the NASDAQ and S&P500 up 9.5% and 8.2%, respectively. Performance in US small caps was more modest, with the S&P600 Small Cap Index up 4.2%. In Europe, the French CAC was the standout, up 7.3%, followed by the UK FTSE and German DAX, up 4.8% and 3.5% respectively. Asian markets were also mixed, with the main Chinese bourse up 4.3% while the Nikkei 225 finished down 1.3%. Unsurprisingly, Tech was the outperformer during the quarter, finishing up 11.3% with most of this strength coming through in the last month. Telco and Healthcare were also strong, up ~9%, while Energy was not far behind, up 7.8%.
On the other hand, Industrials, Utilities, Staples, Materials and Finance sectors, were all lower through the month of June. Financials were particularly weak, down 3.5% in June, as some banks flagged the prospect of lower loan growth and trading revenues and pressure on margins from lower bond yields as earnings headwinds over the next few periods.
Performance Commentary - March 31, 2021 US stocks rose, with the S&P 500 up 5.8% over the quarter. The NASDAQ underperformed, up only 2.8%. The S&P 600 Small Cap Index, which was up 30.8% in Q4 2020, had another very strong three months, up 17.9%. The broad European Index, the Stoxx 600, was up 7.8% while Germany and France both did well with the DAX up 9.4% and the CAC up 9.3%. In Asia, Japan again stood out, with the Nikkei 225 rising 6.3%. China’s Shanghai Composite was down -0.9% – the weakest of the major indices.
Energy, Financials and Industrials were the best performing sectors globally. Sectors that underperformed were Consumer Staples, Utilities and Tech. This is the second quarter in a row that Energy and Financials have led. Tech’s appearance as an underperformer, in this case as the worst performer, is a rarity but may occur more frequently if the market continues to demonstrate an appetite for Value.
Performance Commentary - December 31, 2020 The Fund paid a December 2020 quarterly distribution of 1.40 cents per unit taking its 12-month income return to 6.71%. The biggest stock contribution to the portfolio came from Ambev, which we focus on in the following section, followed by the oil and natural gas producer Canadian Natural Resources (CNQ).
Since the mid-2014 oil price downturn, CNQ’s management have proved themselves able to cut unit costs through efficiency and expansion. This has allowed the company to continue to pay their dividend, leaving the share on a prospective dividend yield of 5.5% at the end of a quarter when the stock rose some 50%. Given the strong reserve position the capex requirement is limited, and the majority of free cash flow should remain available for shareholder distributions or debt paydown.
Another positive contributor to performance in the period was US commercial property owner Brookfield Property Partners (BPY). As we write, BPY has received a takeover offer from parent company Brookfield Asset Management (BAM), valuing each BPY share at $16.50. This is a 15% premium to the last traded price and values the group at 0.61x Book Value. We note that the shares are currently trading above the offer price at ~$17, which may indicate that investors believe BAM will have to provide a ‘bump’ for shareholders to accept the offer. We will study the proposal closely, though bids such as this are a mixed blessing. On the one hand they deliver a short sharp boost to the share price, on the other hand they may not fully realise what we believe should be the upside.
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