David Blumenthal Six Park by David Blumenthal

Equity markets recovered strongly in June after a poor May result. The S&P 500 index led the way, surging +6.9% on expectations of further interest rate cuts by the US Federal Reserve and indications of progress in the US/China trade dispute.

The Six Park portfolios posted gains of +1.0% to +3.4% for the month.  Overall returns for the 2018-19 financial year were +5.8% to +10.8%, a pleasing result considering the sharp market declines experienced in October-December (which had wiped off all year-to-date gains at the time).  During the late 2018 market weakness, we recommended that clients stay the course with their investment strategies.  Those who managed to hold their nerve during this difficult period have enjoyed particularly strong gains.

Over the past three years, Six Park’s portfolios have returned between +4.0% to 11.0% per year (after fees). These strong results highlight the benefits of our low-cost, globally diversified approach and the combination of our passive investment focus and thoughtful asset allocation strategies (under the expert guidance of our Investment Advisory Committee).

Asset class performance

All asset classes posted positive returns in June and over the financial year, an unusual but welcome period of synchronised growth.

Emerging markets and global equities made the strongest gains in June, both posting +4% month-on-month returns.

Infrastructure was the best performing asset class for the year (+14.3%), a marked improvement from the 2018 year when infrastructure was amongst the weakest asset classes (returning just +3.4%).  This performance inconsistency is a useful reminder of the unpredictability of markets and a key reason why our portfolios are diversified across multiple asset classes and geographies.

After a torrid May result, emerging markets rebounded +4.4% in June to finish the year up +8.8% overall. Chinese stocks benefited from signs of progress in the US/China trade dispute (both countries halted further tariff imposts in June and agreed to resume negotiations following a meeting between their leaders at the G20 summit). Expectations of further cuts to US interest rates (and the expected flow-on effect on global growth) helped drive investor optimism across most other emerging markets. The signing of a comprehensive trade deal between the Mercosur countries (Brazil, Argentina, Uruguay and Paraguay) and the EU – after almost two decades of negotiations – provided a further boost to South American stocks.

International equities posted gains of +4.2% in June, boosted by expectations of interest rate cuts by US and European central banks and renewed hopes of a truce in the US-China trade dispute. In the US, the S&P 500 posted its strongest June performance since 1955 and its best first-half result increase since 1938 (+17.4%).  Gains were lower but still solid across European and Japanese markets, with the German DAX rising 5.7%, the UK FTSE100 adding +3.7% and Japan’s Nikkei gaining +3.3%. International equities were up +11.5% over the financial year, a third consecutive year of double-digit returns.

Australian shares rallied +3.8% in June, with the RBA’s decision to lower interest rates helping to boost investor confidence. The resources sector was also buoyed by commodity price gains, with iron ore in particular closing in on 5-year highs.  Over the 2018-19 financial year, the local sharemarket was up +11.4%, marginally trailing its global peers. The best performing sectors were telecoms (up 43%) and consumer goods (up 40%).

Infrastructure stocks followed the lead of global equities, advancing +3.4% rise in June. Falling interest rates helped boost demand for ‘bond proxy’ stocks like infrastructure while improved US/China trade relations added a further boost to port and transport operators.  Infrastructure stocks returned +14.3% for the year overall, the sector’s ninth consecutive financial year of positive returns.

Global property added 0.5% for the month. Although US real estate trusts made solid gains (+2.4%), overall sector returns were impacted by a 1.4% rise in the AUD (which reduced the value of overseas denominated assets) and weakness across European REITs, with investors spooked by a Berlin city government proposal to freeze residential property rents for 5-years from 2020. The sector ended the financial year up +11.4%.

Fixed income gained a further +1.2% in June, boosted by investor expectations that the RBA would cut rates in July (which it now has) and again before year-end. Falling rates have a positive impact on bond prices (lower rates mean high bond prices) and have been the key driver of the sector’s 9.5% gain across the 2019 financial year.

Cash yields were lower in June, following the RBA’s interest rate reduction, and remain subdued over the financial year in line with the prevailing low-interest rate environment.

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Published June 30, 2019