Fears about the rapid spread of the coronavirus dragged global share markets sharply lower in February, with US and local share markets enduring their biggest weekly decline since the GFC during the final week of the month. The Six Park portfolios ended the month down -2.6% to -7.0%, with our lower risk portfolios being largely (but not entirely) shielded from the equity market downturn. These declines follow an exceptionally (and unusually) strong year of performance.
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Notes: (1) Past performance is not indicative of future performance. (2) All figures are illustrative in nature based on notional $50,000 portfolios which are assumed to have been fully invested at the start of the relevant period. Your actual investment performance may vary depending on factors such as the timing of your investment with us. (3) All figures are pre-tax but net of Six Park’s and applicable ETF fees. The results are based on closing prices for each ETF, not NAV. They assume dividend reinvestment (at month end) but do not include dividend imputation, cash holdings or annual rebalances. (4) Returns are annualised.
Asset class performance
Almost all asset classes ended the month sharply down, with the sole gainers being our fixed income and cash yield ETFs.
Fixed income gained +0.7% for the month, benefiting from renewed investor demand for “safe haven” assets amid growing fears of a global pandemic. The prospect of further monetary policy easing by the RBA provided further support (since lower interest rates typically translate to higher bond prices).
Our cash yield ETF added 0.1% in February. Returns from this asset class remain subdued (given the prevailing low-interest rate environment) but helped underpin capital stability across our lower risk portfolios.
Emerging markets fell -3.9%, as coronavirus worries and falling oil prices drove most markets lower. Chinese shares (which represent 37% of the asset class) bucked the trend, recording a modest gain as virus infection rates across its major provinces showed signs of stabilising.
Global property declined -5.4% over the month. While the sector fared slightly better than most other global equity risk assets (and also benefited from the 3% fall in the AUD), real estate trusts with exposures to retail, hospitality and leisure were sold-off sharply due to concerns about how the virus outbreak might impact their customers and operations.
Infrastructure stocks fared poorly in February (down -7.6%). While many companies within the sector offer earnings which are largely uncorrelated to economic activity (particularly regulated utilities), the sector was not immune from indiscriminate investor selling at months end as well and fears of the virus’s impact on customer demand (for energy, transport and the like).
Just one month after posting their best start to a year since 2012, Australian shares registered their worst monthly decline in 12 years. Growing fears of a global coronavirus pandemic were the overwhelming driver, as well as concerns over the economic ramifications that a slowdown in China would have on the local economy (given Australia’s significant trading ties with China). Almost all sub-industry sectors posted losses, with the worst performers being household and personal products (down -28%) and capital goods (down -18%).
International equities fell -7.8% in February (and -10.3% on a hedged basis without the cushion of the 3% fall in the AUD). While US markets briefly touched record highs in mid- February (buoyed by strong employment data, Trump’s acquittal from his impeachment trial and an expectation that the coronavirus would be contained in China), fears of a global viral pandemic escalated rapidly after South Korea, Italy and Iran all reported a surge in coronavirus infections. Concerns over the virus’ spread and potential on global economic growth drove all major share markets down sharply in the final week of February, with all major US and European indices recording their worst weekly declines since 2008.
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