David Blumenthal Six Park by David Blumenthal

July was another strong month for investors, with both local and US sharemarkets posting gains on expectations of rate cuts by the US Federal Reserve, continued hopes of a US-China trade deal and better-than-expected economic data releases. The Six Park portfolios posted gains of +0.9% to +2.7% for the month, lifting our rolling annual returns to +6.4% to +12.0%.

Asset class performance

All asset classes posted gains in July, marking consecutive months of synchronised positive returns. International shares and global property were the standout performers, rising +3.7% and +3.4% respectively.

International equities gained +3.7% in July. US markets rose modestly over the month (the S&P500 was up +1.3%), buoyed by generally resilient economic and earnings releases and a decision by the US Federal Reserve to cut interest rates at month-end (the first such move in more than a decade). Japanese equities and UK also rallied, the former boosted by an election wins by Prime Minister Abe’s democratic party (which removed lingering political uncertainty) and the latter by a rebound in GDP figures and the depreciation of the British Pound (as a result of increased Brexit uncertainty following Boris Johnson’s ascendancy to the position of PM). A 1.7% fall in the AUD provided a strong further boost to monthly returns in AUD terms.

Global property added +3.4% for the month, making the sector the best performing asset class over a rolling 12-month period once again (up +15.6%). US real estate trusts led the way, boosted by strong earnings results and renewed investor demand for yield-assets given the US Fed’s rate cuts. The fall in AUD helped underpin overall gains.

Australian shares lifted 2.9% in July, marking the seventh consecutive month of gains for the local sharemarket. Towards month end, the ASX200 briefly hit record highs, finally breaching its pre-GFC peak of November 2007 (excluding dividends). Almost all sub-sectors posted gains over the month, with consumer durables and food and beverage stocks posting the largest gains (+17.5% and +14.8% respectively) helping to offset declines across capital goods and automobile stocks.

Emerging markets were up 1.1% for the month although underlying country performances were mixed. Chinese equities declined slightly, with concerns over the ongoing US trade dispute weighing on investor sentiment. Indian and Thailand stocks (comprising a combined 15% of our selected emerging market ETF) were also weaker on the back of lacklustre earning releases.  These declines were offset by the falling AUD and strong gains across South African and Brazilian stocks.

Fixed income rose 0.8% in July, boosted by the RBA’s decision to cut rates by a further 0.25% during the month. Falling rates have a positive impact on bond prices (lower rates will tend to drive bond prices higher) as explain in our primer here.

Infrastructure stocks gained a further +0.7% for the month. Expectations of further rate cuts by major central banks continued to boost demand for ‘bond proxy’ stocks (such as infrastructure) and have been a key driver of the sector’s +13.8% gains over the past 12-months.

Cash yields were positive but subdued in July, with the RBA’s decision to cut interest rates putting further downward pressure on bank deposit yields.

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Published July 31, 2019