David Blumenthal Six Park by David Blumenthal

Escalating concerns over global growth and trade weighed heavily on global equities during August and resulted in the ASX200 posting its first decline for the 2019 calendar year. Meanwhile, global property, infrastructure and bonds all bucked this trend and posted solid monthly gains.

The Six Park portfolios had mixed performances in August, with our lower risk portfolios advancing and our higher risk portfolios (which have higher exposures to falling equity markets) declining slightly.  On a rolling 12-month basis, our portfolio returns stand at +6.0% to +9.0%. Over the past three years, the portfolios are up between +4.0% and +10.2% per annum.

Asset class performance

Global property was once again the standout performer, posting a gain of +3.4% in consecutive months. Domestic equities and emerging markets were the weakest asset classes, falling ‑2.4%.

Global property posted another month of strong returns (+3.4% in August).  While the falling AUD (down -1.6% against the USD) provided a strong tailwind, the sector also benefited from ongoing investor demand for “bond proxy” assets (like real estate and infrastructure) which are perceived to be relatively insulated from global economic risks and offer higher yields than bonds.

Infrastructure gained +1.5% for the month, enjoying similar “flight to safety” demand as the global property sector – but without the benefit of the falling AUD (since our selected ETF is hedged in AUD).  Infrastructure is now the strongest performing asset class over the year, up +15.7%.

Fixed income rose +1.4% for the month. The sector continues to benefit from investor expectations of further rate cuts by the RBA over the coming months. Falling rates have a positive impact on bond prices given the inverse relationship between bond prices and yields (read more here).

Returns on our cash yield ETF were positive but muted (+0.1% for the month), reflecting the ongoing low interest rate environment across Australian banks.

International shares declined marginally in August (-0.3%), although the falling AUD helped mask deeper losses seen across all major overseas sharemarkets.  US markets fell sharply in early August (spooked by further escalations in the US/China trade dispute) but recovered slightly over the course of the month as employment and retail sales data releases indicated the US economy remained relatively robust  UK and European stocks also closed lower, weighed down by weak economic data in Germany and ongoing Brexit uncertainty.

Australian shares posted their first monthly decline of the 2019 calendar year, falling -2.4% in August.  Global geopolitical issues (particularly around the US/China trade war, protests in Hong Kong and Brexit) were a key driver of investor nervousness, along with falling commodity prices and a generally weaker-than-expected profit reporting season.

Emerging markets also fell -2.4% over the month. Stocks in China and Taiwan softened on concerns of slowing global growth and the worsening US trade dispute.  Weak oil and bulk commodity prices also weighed heavily on overall market sentiment.

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Published August 31, 2019