Australian Equities Fund

(Formerly Forsyth Barr Australian Equities Fund)

Overview

The fund aims to achieve positive long-term returns by investing mostly in selected Australian shares, and in New Zealand listed shares, where the company has meaningful operations in Australia, which will typically have very high levels of movement up and down in value.

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Unit Price

Month End Unit Price

As at 30 Apr 2022

1.5872 NZD

The unit prices shown do not take into account any adjustment for any accrued PIE tax that individual investors may need to pay on withdrawal. Buy/sell spreads may apply when transacting - there are currently none.

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Manager's Comment

Market Commentary

The Australian equity market, in general, fell through the month of April after making significant gains in March. Despite this negative return, the Australian equity market continued to outperform most major global indices (in local currency terms) with the S&P500 off (-8.80%), the Japan Nikkei 225 (-3.50%) and the Europe Stoxx 600 (-2.15%).

The sell-off in global equities has been dominated by market fears of broadening inflation pressures, elevated geopolitical risk and further tightening of monetary conditions by Central Banks. These themes may continue to put downward pressure on economic growth, corporate earnings and equity market valuations in the near…

Market Commentary

The Australian equity market, in general, fell through the month of April after making significant gains in March. Despite this negative return, the Australian equity market continued to outperform most major global indices (in local currency terms) with the S&P500 off (-8.80%), the Japan Nikkei 225 (-3.50%) and the Europe Stoxx 600 (-2.15%).

The sell-off in global equities has been dominated by market fears of broadening inflation pressures, elevated geopolitical risk and further tightening of monetary conditions by Central Banks. These themes may continue to put downward pressure on economic growth, corporate earnings and equity market valuations in the near term. Locally, in their April meeting, the RBA removed some of the more dovish language in their economic commentary, paving the way for earlier rate hikes than previously signalled. This more hawkish pivot was compounded later in the month as Australian consumers’ price index (CPI) came in at a 20 year high of (+5.10%), well ahead of market expectations. Both of these events drove market expectations for interest rates higher.

With growth fears, inflationary pressure and valuation headwinds dominating, investors rotated into more defensive sectors of the market with Utilities (+9.33%), Consumer Staples (+3.29%) and Industrials (+3.44%), the best performing sectors for the month. The worst performing sectors included Materials (-4.34%) on a weaker Chinese commodity complex and IT (-10.37%), which followed global peers lower on a mixture of higher inflation/interest rates and weaker than expected revenue outcomes. All returns up to this point are presented in local currency terms.

Portfolio Performance

Pleasingly, the Octagon Australian Equities Fund delivered a positive gross return of +0.88% for the month of April, outperforming the fund's benchmark return of -0.11% by +1.00%.

For the 12 months to the end of April 2022 the Australian Equities Fund delivered a gross return of +14.12%, outperforming the fund’s market index return of +11.40% by +2.72%.

Key contributors to outperformance over the month included our overweight positions in fuel retailer, Viva Energy and private healthcare operator Ramsay Healthcare. Viva signalled a recovery in fuel volumes as lockdowns eased and the demand outlook improved, there were also promising signs for refining margins which buoyed the outlook. Ramsay Healthcare soared (+31.03%) after receiving an indicative takeover proposal by a consortium of private equity investors, the offer highlighting our long held view there was latent value in Ramsay’s portfolio of high quality healthcare real estate, with upside from the volume recovery in elective surgeries. Our underweight position in BHP also boosted performance, as fears around harsh lockdowns and slowing Chinese growth saw key commodity prices weaken.

Key detractors from performance included our underweight positions in toll-road operator, Transurban Group, and plastic packaging manufacturer, Amcor. Both benefitted from their relatively defensive characteristics, as investors rotated into lower risk segments of the market.

Outlook

Large moves in interest rate expectations and longer term bond yields over the last few months have been in line with our expectations, showing Australia is not immune to the inflationary pressures being experienced across the globe. Greater risks are emerging for the global economy, with Chinese growth slower than it has been historically and impacted by strict lockdowns. Monetary policy, easy for some time, is now being tightened in many major economies. These factors present some downside risk to global economic growth and many commodity prices may be vulnerable to a correction. A key swing factor to our portfolio positioning remains the outlook for wage inflation, which has the potential to extend the current period of high inflation for longer, and in turn, lead to a higher interest rates than would otherwise be needed. We have positioned the portfolio to take advantage of higher interest rates by adding more exposure to high quality Australian banking franchises, while maintaining limited exposure to the more expensive technology sector which continues its free-fall.

We actively manage the fund’s foreign currency exposures. As at 30 April 2022, these exposures represented 100.85% of the value of the fund. After allowing for foreign currency hedges in place, 66.88% of the value of the fund was unhedged and exposed to foreign currency risk.

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Major Investments

As at 30 Apr 2022
Company name % of fund
BHP Group Limited 7.97%
CSL Limited 7.85%
Westpac Banking Corporation Ltd 5.25%
Commonwealth Bank of Australia Limited 5.21%
National Australia Bank Ltd 3.92%
Australia and New Zealand Banking Group Limited 2.92%
Rio Tinto Ltd 2.74%
Macquarie Group Ltd 2.70%
Telstra Corp 2.52%
Ramsay Health Care Limited 2.14%
Major holdings as % of total portfolio 43.22%
Total portfolio holdings 88

Performance over time

Return Comparison

As at 30 Apr 2022
1 Month 3 Months 1 Year *3 Years *Since commenced operation
Net Fund Return 1 Month 0.92% 3 Months 9.78% 1 Year 11.92% *3 Years 8.35% *Since commenced operation 2.91%
Gross Fund Return 1 Month 0.88% 3 Months 10.31% 1 Year 14.12% *3 Years 10.44% *Since commenced operation 4.82%
S&P/ASX Accumulation 200 Index (0% Hedged to the NZD) 1 Month 0.55% 3 Months 10.49% 1 Year 12.04% *3 Years 10.77% *Since commenced operation 5.84%
S&P/ASX Accumulation 200 Index (50% Hedged to the NZD) 1 Month -0.11% 3 Months 9.48% 1 Year 11.40% *3 Years 10.31% *Since commenced operation 6.44%
S&P/ASX Accumulation 200 Index (100% Hedged to the NZD) 1 Month -0.77% 3 Months 8.48% 1 Year 10.72% *3 Years 9.81% *Since commenced operation 6.91%

*Annualised
Net Fund Returns are calculated after deduction of fund charges, trading expenses and accrued tax for a New Zealand resident paying individual tax at the highest Prescribed Investor Rate (28%). Gross Fund Returns are calculated before deduction of taxes and fund charges but after deduction of trading expenses and including imputation credits where applicable. Market index returns do not have any deductions for fund charges, trading expenses or tax.

The S&P/ASX Accumulation 200 Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Forsyth Barr Limited. Copyright © 2015 S&P Dow Jones Indices LLC, a subsidiary of McGraw Hill Financial Inc., and/or its affiliates. All rights reserved. Redistribution, reproduction and/or photocopying in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

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Morningstar Performance

Morningstar is a leading global provider of independent investment research that ranks and reports on Funds within New Zealand and Australia. View the latest Fund Report for the Australian Equities Fund.

Fund update

As at 31 March 2022

This document tells you how the Australian Equities Fund has performed and what fees were charged. The document will help you to compare the fund with other funds. (Please note that this fund was previously known as the Forsyth Barr Australian Equities Fund, and that Fund Updates may refer to the fund by that name.)
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General Fund Information

Risk indicator

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The risk indicator is rated from 1 (low) to 7 (high). The rating reflects how much the value of the relevant fund’s assets goes up and down (volatility). A higher risk generally means higher potential returns over time, but more ups and downs along the way. The risk indicator is based on the returns data for the five years to 31 March 2022. See more information about the risks of investing in the Product Disclosure Statement.

Target investment mix

Cash and cash equivalents 5%
New Zealand fixed interest 0%
International fixed interest 0%
Australasian equities 85%
International equities 0%
Listed property 10%

Things to note

  • Manager: Forsyth Barr Investment Management Limited
  • Investment manager: Octagon Asset Management Limited
  • Date the fund started: 26 June 2008
  • Tax status: Portfolio Investment Fund (PIE)
  • Minimum suggested investment time frame: At least five years
  • Benchmark: None
  • Currency: New Zealand dollars

View the Product Disclosure Statement for detailed information about this Fund and Octagon Investment Funds Scheme.

Fees

  • Annual fund charges are currently 1.15% p.a. of the value of your investment. We pay management and administration charges along with the Supervisor fee out of this. All fees and charges are quoted exclusive of GST.

Forsyth Barr Investment Management Limited is the issuer and Octagon Asset Management Limited the investment manager of the Octagon Investment Funds. The comments on this webpage do not take your personal circumstances into account. Before acting on any information on this webpage, we recommend you seek financial advice. Forsyth Barr Investment Management Limited, Octagon Asset Management Limited and their affiliates do not make any representation or warranty (express or implied) that this webpage is accurate, complete, or current and to the maximum extent permitted by law disclaim any liability for loss which may be incurred by any person relying on this webpage. This webpage is not intended to be distributed or made available to any person in any jurisdiction where doing so would constitute a breach of any applicable laws or regulations.

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) or Financial Advice Provider Disclosure Statement (NZ) at www.morningstar.com.au/s/fsg.pdf and ww.morningstar.au/s/fapds.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser.
The Morningstar Rating is an assessment of a fund’s past performance – based on both return and risk – which shows how similar investments compare with their competitors. A high rating alone is insufficient basis for an investment decision.

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