November 2022 – Market Commentary
The Fund delivered +0.71% in November, 6.91% over 12 months and 6.37% annualised since inception.
Fund investors shall welcome the higher RBA cash rate increasing the Funds targeted return to 8.10% (p.a. as at December 2022) net of fees, comparing very favourably to what many predict will be a soft year ahead for equity markets.
In January, we outlined the key areas to watch in 2022: inflation, the removal of stimulus, Australian property, and the more hawkish global central banks. While these dominated investor concerns through 2022 and, at times, created intense market volatility, none have caused the widespread dislocation that some suggested. For example, despite the most prolific increase in the RBA cash rate in living history, unemployment which we see as a crucial barometer of economic health, remains at record lows, with households having substantial savings to buffer them against a more challenging 2023. Australian property has fallen in value, although its path suggests an orderly market dynamic without signs of distress, such as forced sales.
Looking ahead to 2023, the negative wealth effect of falling house prices, the slowing of excess household savings spending, the projected increase in unemployment, and higher mortgage repayments for many mortgage holders may drag economic growth lower. Fading employer optimism around future growth could reduce business investment and potentially lead to greater restraint in wage negotiations, further restricting growth. However, it is unlikely that the economy will slip into a deep recession. Australia benefits from low government debt compared to other developed economies and interest rates have risen, which provides scope for stimulus, although the government and RBA are likely to be cautious in their approach.
We see little change needed to the Funds construct, which has focused on:
- prioritising opportunities that are secured by a hard asset that could be sold to repay our investment (for example, low loan to value first mortgage loans)
- focusing on ‘through the economic cycle’ sectors being sensible consumer, business and mortgage-related transactions
- retaining the short maturity nature of assets to ensure we can continue to pivot as the facts change (the average maturity of our portfolio is 7 months)
- and most importantly, taking a risk-first approach to assessing every opportunity rather than being attracted to higher-yielding opportunities.
These factors have added considerable value to Fund investors in 2022 and we believe they shall continue to do so in 2023.
As our final note for the year, the Manning Asset Management Team wishes to thank our clients, their financial advisers, asset consultants, wealth groups and institutions who use or recommend our Fund. We wish you an enjoyable and safe festive season and look forward to delivering an industry-leading return on your capital in 2023.