You are reading: Progressive Global Fund – March 2022

The Progressive Global Fund declined 3.6% for the month of March. In contrast, the World MSCI Index declined 1.3% in Australian dollar terms. Year to date, the Fund has declined 4.0% versus the World MSCI Index which has declined 8.4%.

The Progressive Global Fund Positioning & Portfolio

March was yet again a turbulent month for markets and was a tale of two halves. Global equity markets fell up to 20% from their January highs in the first half of the month. They then recovered to go regain most of their losses in the second half. These moves were mostly in reaction to developments in the Russia/Ukraine war as well as fears around rising interest rates. Global bond markets saw outright carnage, with bonds suffering their worst quarterly performance since 1973.

The biggest detractor to the Fund’s performance in March was again the rise of the Australian dollar. The Fund is predominantly invested in offshore equities, whose return in Australian dollar terms depends on the exchange rate. The rise of the Australian dollar hit the Fund’s performance over the month by 1.2%.  Strength in the Australian dollar was underpinned by the continued rise in commodities as well as the country’s perception as a relatively stable geopolitical haven.  With the devasting situation in the Ukraine ongoing, we believe that even if a peace deal is reached, the sanctions placed on Russia could remain for many years. Reducing reliance on Russia’s natural resources is likely to remain a priority for net importers with Australia set to benefit as an alternative supplier and net exporter. We do not typically hedge our currency exposure, but we are looking at various avenues to reduce the impact of adverse currency movements given the possibility that the Australian dollar could continue to strengthen in the near to medium term. Over the long term, however, we believe the ups and downs of the impact of the exchange rate on the Fund’s performance tends to even itself out.

The Fund’s short positions also detracted from performance. These short positions performed well as the market fell in the first half of the month, and we looked to add to the short book to manage the risks in the portfolio. However, these short positions were faced with a strong headwind because of the very sharp rise in stocks from the middle of the month caused by renewed risk appetite.

The Fund’s best performers were some of our long positions in high-quality technology companies. Many of these companies were trading at historically low valuations despite being franchise leaders with robust growth outlooks still intact. The Fund’s positions in the resources sector also performed well as commodity prices continued their ascent. Some of our resource’s stocks look well positioned to continue to outperform, with some exceptionally cheap and trading on 1-2 times free cash flows and with sensible capital management structures in place.

It has been a rocky start to the year and is unlikely to get any easier. Inflation, war, yields and the prospects of recession are just some of the risks which remain front of mind and appear unlikely to abate anytime soon. For this reason, we continue to run a barbell approach with high exposure to quality technology stocks and cyclicals such as resources, energy, and travel & leisure sectors which we view as being beneficiaries in the current environment.  On the other side, our shorts consist of interest rate and inflation headwind related sectors such as housing and home and personal care related companies.