During January our Fund rose 0.7%2, underperforming the Small Ordinaries Index by 0.2% and outperforming the Small Industrials Index by 0.4%. Over the twelve months to January, the Fund is up 15.4%1, which is 15.6% above the Small Ordinaries and 8.9% above the Small Industrials.
Global markets were mixed during January, with European markets up 6.5% following a renewed QE program, offset by a lower US market primarily due to the strength in the US$. The Australian sharemarket rose 3.3%, with the industrials’ outperformance being driven by the ongoing search for yield, combined with the positive effect of a lower A$ on offshore industrial earnings. Resources stocks continued to struggle under weaker oil, copper and iron ore prices. Smallcap stocks rose 0.9% during the month, with resources stocks mildly outperforming industrials.
The domestic economy continues to labour under weak consumer sentiment, and renewed political distractions. This has prompted the RBA to cut rates again in early February, resulting in further weakness in the A$. While there are longer term benefits from a lower A$ and lower interest rates, the environment for the retail sector remains highly challenging. A lower A$ will necessitate price rises which are unlikely to be smoothly received, hence further challenges lie ahead. As a result we remain averse to smallcap cyclical retailers.