Summer Growth Selection

How did your portfolio perform? 

The Summer Growth Selection (the fund) delivered a return after fees and before tax of 1.55% for the month of May. For the 12 months to the end of May, the fund delivered a return after fees and before tax of 10.92%.

There were positive returns from all the asset classes making up the Growth Fund during May. Global equity markets have rallied more than 15% since the end of March – one of the sharpest two-month rallies in history. All three of our managers in that strategy failed to keep up, outweighing solid performance by the managers of the remaining asset classes within the Growth Fund.

For details on the Growth Fund's single asset class funds, see the relevant commentary.

We actively manage the fund’s foreign currency exposures and hedge the international fixed interest segment of the fund. The New Zealand dollar rose 1.68% against the US dollar and fell 1.63% against the Australian dollar.

What happened in the markets you invest in? 

Despite ongoing uncertainty around oil supply from the middle east, continued strong updates on the US economy and US corporate profitability propelled global equities upwards. The rally was led by stocks broadly exposed to the Artificial Intelligence build out – from memory chips to data center builders to power suppliers.   

Australasian equity markets, including listed property, followed suit, but in less dramatic fashion.  

Economic Growth and inflation readings supported a pause in the interest rate cycle which also allowed fixed interest markets to deliver positive returns. Inflation rates are elevated however, and the longer the Iranian war continues, the more pressure there will be for central banks to raise rates.

What are we thinking about the future? 

In May we moved to our new Strategic Asset Allocation (SAA) settings, upweighting our exposure to global equities, whilst reducing our exposure to Australian and Listed Property equities.

We updated our analysis of the expected returns and risks across each asset class, which is the foundation of our SAA and guides the construction of an efficient portfolio. We then applied Octagon’s investment philosophy, which emphasises diversification and liquidity, to moderate the optimiser's natural tendency to concentrate investments in a small number of asset classes.

Despite the already strong performance of global equities over the past two years, our assessment of recent earnings growth and profit forecasts over the next five years supports the increased allocation. As part of the SAA changes, we also removed our Tactical Asset Allocation (TAA) underweight in global equities back to neutral. This continues a series of adjustments made in recent months, reflecting robust corporate earnings, a broadening of market performance beyond US technology stocks, and a period of more subdued global market returns through to the end of March.

We remain very alert to the risk that US equities may be exhibiting bubble-like valuations, however our current view is that earnings momentum continues to support these elevated valuations. We also retain significant flexibility within our TAA ranges to be more cautious should profit growth begin to weaken.

Fixed interest markets look fairly priced. Sticky inflation is our base case, limiting capital gains. Fears of a recession due to a protracted Middle East conflict would boost the returns from the asset class. We see more attractive returns in Listed Property markets, as they are priced cheaply whilst being exposed to the same two-way dynamic as interest rate markets.