September saw the S&P / ASX 200 decline by -7.34%, which was the third month this year where the Australian share market dropped by over -5%. The Australian share market was not the only market that dropped during September; the Nasdaq 100, Russell 2000, Dow Jones 30 and S&P 500, all declined by over -8.5%.
Don’t fight the Fed
Investor focus continues to be on communication from the US Federal Reserve regarding interest rates. After markets participants misinterpreted US Federal Reserve minutes as dovish, Powell reiterated on numerous occasions through-out the month, that interest rates need to increase above the terminal rate in an effort to slow down consumer and corporate demand. Powell emphasised that this slowdown will impact the property market, businesses and they expect to see an increase in the number of people out of work.
Hiring slow down
In September we had a number of global businesses announce that they will slow down their hiring plans, or in some instances, look at letting people go. Goldman Sachs stated they will look to let go between 1-5% of their workforce after the Labour Day weekend. Meta (parent of Facebook) are slowing their hiring plans, by reducing the number of engineers hired by 30%. Snapchat also announced they were cutting its 6400 workforce by 20%.
Bank of England steps in
UK Government debt markets went into a spiral middle of last week. As a result the Bank of England stepped in to restore market function and reduce any risks from contagion to credit conditions for UK households and businesses. They said that they will carry out temporary purchases of long-dated UK government bonds from 28 September. As interest rates continue to increase, and financial conditions tighten, we expect to see further periods of market stress.
Portfolio performance
During September, both strategies continued to be defensive. The Frame Futures Fund – Class 1F declined by -3.47%. The Long Short Australian Equity strategy declined by -3.30%.
Top equity contributors for the Frame Long Short Australian Equity Fund (FLSAEF) were our investments in New Hope Corporation (ASX: NHC) and Whitehaven Coal (ASX: WHC), they contributed approximately +0.40%, and +0.29% respectively.
Largest detractors for the month were Atlas Arteria Group (ASX: ALX) and Mineral Resources (ASX: MIN). They detracted approximately -0.27%, -0.27% and -0.22% respectively.
Wrapping up
Like I have mentioned in earlier issues, we continue to focus on incoming data, and protecting the downside during these periods of extreme volatility.
Our research team continues to focus on strategy development, and we look forward to discussing these improvements with our investors over the upcoming weeks.
If you would like to discuss any of these points, please email me at hue@framefunds.com.au or call our office at 02 8668 4877.
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