Fund Commentary
The Fund rose 4.6%1 over the March quarter, versus a 0.9%1 rise in the Small Ordinaries Index and a 1.5%1 rise in the Small Industrials Index. For the 12 months to March, the Fund was up 16.7%1, outperforming the Small Ordinaries Index by 18.2%1 and the Small Industrials Index by 7.5%1.
Global equity markets were largely unchanged during the quarter, bouncing from earlier weakness caused by nerves over emerging economies, and Russian moves to annex Crimea. The Australian sharemarket rose 2.1% despite concerns over growth rates in China which saw mining stocks underperform. The offsets were strength in banks and REITs following a recovery in bond markets. Results season was reasonable, with cost cutting aiding margins, and lower interest rates adding to EPS growth. The domestic smallcap market rose 0.9%, driven by a slightly stronger industrials sector.
The Australian economy is slowly rebalancing away from a heavy reliance on the mining construction cycle towards more traditional sectors. This switch is unlikely to be perfectly balanced however, especially with the A$ still trading above US90c, hence it is unlikely interest rates will rise in the short term. Consumer and business confidence remain patchy, however, we believe there is strong scope for improvement if for no other reason that political uncertainty in Australia has subsided markedly since the election in September. This uncertainty saw many decisions postponed through 2013 at both a personal and corporate level. Anecdotal feedback in the staffing markets (often the first to recover) suggests confidence has strengthened during the March quarter.
