OnePath WS-Emerging Companies (MMF0112AU) Report & Performance

The first quarter of 2023 saw the reacceleration of the global economy. Despite some headwinds created by aggressive monetary policy tightening in 2022, the first months of the year were characterized by a relatively strong global economy. The situation was helped by a low unemployment rate in Western developed countries, a robust rebound for the Chinese economy thanks to its reopening and a mild winter in Europe, all of which led to lower energy prices. China’s economy benefited from a strong post-COVID reopening as well as improved pricing and investment in the property sector. Europe saw better-thanexpected economic strength, helped by lower energy prices. Developed central banks continued to hike rates during the quarter. However, major central banks became less aggressive, downsizing the level of their rate hikes as they neared the end of their respective tightening cycles. One major central bank, the Bank of Canada, decided to enact a conditional pause of its tightening cycle.

Inflation generally moderated, largely driven by some balance in the goods component of inflation. However, services ex-housing inflation is a significant concern for the U.S. Federal Reserve, especially given that the labormarket remains tight. The last month of the quarter saw problems erupt in the banking sector, which came under pressure as a result of aggressive monetary policy tightening. However, the issues did not appear to be systemic, and a rapid response from policymakers helped to calm markets.

During the September quarter, Karara was replaced by Acadian as the manager of the portfolio. Acadian generated very strong performance over the quarter from stock and industry sector selection relative to the S&P/ASX Small Ords index. Good stock selection in Banks, Consumer Discretionary, Energy, Industrials, IT, Metals and Mining, while a large overweight in the Energy secotor was the main contributor to sector outperformance. Stock selection in Gold dectracted performance. Some of the larger stock contributors included oveweigths in New Hope and NIB and underweight Brainchip, Magelln and Megaport.

During the September quarter, Karara was replaced by Acadian as the manager of the portfolio. Acadian generated very strong performance over the quarter from stock and industry sector selection relative to the S&P/ASX Small Ords index. Good stock selection in Banks, Consumer Discretionary, Energy, Industrials, IT, Metals and Mining, while a large overweight in the Energy secotor was the main contributor to sector outperformance. Stock selection in Gold dectracted performance. Some of the larger stock contributors included oveweigths in New Hope and NIB and underweight Brainchip, Magelln and Megaport.

During the September quarter, Karara was replaced by Acadian as the manager of the portfolio. Acadian generated very strong performance over the quarter from stock and industry sector selection relative to the S&P/ASX Small Ords index. Good stock selection in Banks, Consumer Discretionary, Energy, Industrials, IT, Metals and Mining, while a large overweight in the Energy secotor was the main contributor to sector outperformance. Stock selection in Gold dectracted performance. Some of the larger stock contributors included oveweigths in New Hope and NIB and underweight Brainchip, Magelln and Megaport.

During the September quarter, Karara was replaced by Acadian as the manager of the portfolio. Acadian generated very strong performance over the quarter from stock and industry sector selection relative to the S&P/ASX Small Ords index. Good stock selection in Banks, Consumer Discretionary, Energy, Industrials, IT, Metals and Mining, while a large overweight in the Energy secotor was the main contributor to sector outperformance. Stock selection in Gold dectracted performance. Some of the larger stock contributors included oveweigths in New Hope and NIB and underweight Brainchip, Magelln and Megaport.

Global markets were rattled in June after several central banks lifted interest rates to fight inflation, stoking fears of recession. The US Federal Reserve lifted its benchmark rate in the biggest increase since 1994, while central banks in Switzerland, England, New Zealand and Australia all followed. Data in the US showed inflation running at the highest level in 40 years. In Australia the broad-based S&P/ASX 300 Index ended the month down 2.76% while the Small Ordinaries Index fell 7.01%. The US Fed lifted the official interest rate by 0.75% as it intensified efforts to combat inflation. Fed Chairman Jerome Powell pointed to another 0.50% to 0.75% increase at the July meeting however he added that large increases like that in June would not become ‘‘common’’.

In Australia, the Reserve Bank blindsided many economists when it increased the cash rate from 0.35% to 0.85%, the largest increase in 22 years, and forecast inflation to peak above 7% later this year. ‘‘While inflation is lower than in most other advanced economies, it is materially higher than earlier expected,’’ Governor Phillip Lowe said, citing supply chain and Ukraine as the main contributors

Governor Lowe noted that a cash rate of 2.5% was a ‘‘reasonable’’ expectation for how high rates would get to ‘‘at some point’’, but how fast they got there would be determined by future events. The yield on the 10-year Australian government bond rose to 4.2%, a level not seen since 2014. The yield on the three-year bond surged 15 basis points to 3.82%, the highest level since March 2012.

Commodity prices were mixed. Supply chain pressures saw Brent Oil climb 10% to $122 while Iron Ore prices dropped 5% to$137 as China Covid restrictions impacted demand. Gold fell US$60 to US$1,852 largely reflecting the strength of the US dollar, the secondbest performing fiat currency this year to date, coming in behind the Russian ruble.