During January our fund fell 2.0%1, outperforming the Small Ordinaries Index by 0.8% and outperforming the Small Industrials Index by 1.2%. Over the twelve months to January, the fund is up 16.0%1, which is 23.4% above the Small Ordinaries and 8.3% above the Small Industrials.
Global markets were weak in January, driven by softer data from China and a sense that the US recovery had somewhat stalled. This short term correction is not a complete surprise given the need for a breather after a particularly strong 2013. The Australian market fell 2.0% driven primarily by weakness in the banking sector, retail and energy sectors. Domestic smallcap stocks fell 2.8% with mining stocks slightly outperforming.
We are heading into reporting season now which provides firmer insights into the state of the economy, and more importantly, stock-specific news on recent trading and outlook. So far, results in our companies have been quite strong, however less than one fifth of our stocks have reported.
We remain heavily exposed to the financial services sector which we believe is in strong recovery mode. Low interest rates and a more stable equities market are seeing investors slowly reinvest in the share market, resulting in positive inflows for the first time in years for companies such as Perpetual, Platinum etc. With over $700bn invested in term deposits, which now yield below 4% (before tax), we would expect further flows into equities products which should benefit our key holdings in the sector (IOOF, Magellan Financial, Perpetual, Platinum, SFG Group, and Treasury Group).
