The AB Managed Volatility Equities Fund is designed for equity investors seeking lower volatility, reduced downside risk in falling equity markets, and the potential for long-term capital growth and some income, including franked Australian dividend income. The Fund implements a managed-volatility equities strategy that aims to reduce volatility by identifying, and investing in, high-quality listed equity securities that have reasonable valuations, high-quality cash flows and relatively stable share prices.
• In July, the MVE – Class underperformed its benchmark, the S&P/ ASX 300 Index, which was up 2.89% in Australian-dollar terms.
Detractors
• Pharmaceutical company Merck underperformed generally in line with healthcare on limited stock-specific news.
• A lack of exposure to “big four bank” CBA detracted. After weak bank results in February and May, the banking sector generally outperformed in July on limited news. We see margin pressure continuing to intensify as high rates induce customers to switch from low or no interest deposits to more attractive products.
• After a strong period of performance year to date, diagnostics company Sonic Healthcare detracted as it gave up some gains during the month. We continue to like Sonic for its strong balance sheet, stable cash flows and an attractive pipeline of bolt-on acquisitions.
Contributors
• An underweight to biotech company CSL contributed as a competitor to its flagship immunoglobulin franchise released positive phase 3 clinical trial data showing comparable efficacy in a major indication.
• Evolution Mining contributed as gold prices increased approximately US$40 per ounce in July, helping gold producers. In addition, Evolution reported fourth-quarter production results and provided FY:24 guidance that topped some expectations.
• Not holding asset manager Macquarie contributed as it downgraded its outlook for 2024 earnings, primarily due to lower deal flow and weaker commodity income.
What is AB Managed Volatility Equities AB Managed Volatility Equities is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Large Cap Neutral Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The AB Managed Volatility Equities has Assets Under Management of 1.01 BN with a management fee of 0.55%, a performance fee of 0.00% and a buy/sell spread fee of 0.5%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the AB Managed Volatility Equities has returned 3.33% in the last month. The previous three years have returned 4.67% annualised and 10.01% each year since inception, which is when the AB Managed Volatility Equities first started.
How is risk measured in this investment product? There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since AB Managed Volatility Equities first started, the Sharpe ratio is 0.72 with an annualised volatility of 10.01%. The maximum drawdown of the investment product in the last 12 months is -6.81% and -17.06% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product? Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The AB Managed Volatility Equities has a 12-month excess return when compared to the Domestic Equity - Large Cap Neutral Index of -9.45% and -0.64% since inception.
Does the investment product produce Alpha over its Peers? Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. AB Managed Volatility Equities has produced Alpha over the Domestic Equity - Large Cap Neutral Index of -0.35% in the last 12 months and 0.21% since inception.
What are similar investment products? For a full list of investment products in the Domestic Equity - Large Cap Neutral Index category, you can click here for the Peer Investment Report.
What level of diversification will AB Managed Volatility Equities provide? AB Managed Volatility Equities has a correlation coefficient of 0.85 and a beta of 0.5 when compared to the Domestic Equity - Large Cap Neutral Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers? For a full quantitative report on AB Managed Volatility Equities and its peer investments, you can click here for the Peer Investment Report.
How do I compare the AB Managed Volatility Equities with the ASX Index 200 Index? For a full quantitative report on AB Managed Volatility Equities compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the AB Managed Volatility Equities to do my own analysis? To sort and compare the AB Managed Volatility Equities financial metrics, please refer to the table above.
Has the AB Managed Volatility Equities been independently verified by SMSF Mate? This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
How can I invest in AB Managed Volatility Equities? If you or your self managed super fund would like to invest in the AB Managed Volatility Equities please contact 32/88 Phillip St, Sydney NSW 2000, Australia via phone 02 9255 1200 or via email Aust_ClientService@alliancebernstein.com.
How do I get in contact with the AB Managed Volatility Equities? If you would like to get in contact with the AB Managed Volatility Equities manager, please call 02 9255 1200.
Comments from SMSF Mates SMSF Mate does not receive commissions or kickbacks from the AB Managed Volatility Equities. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - June 30, 2023 • In June, the MVE—Class underperformed its benchmark, the S&P/ASX 300 Index, which was up 1.73% in Australian-dollar terms.
Detractors
• The materials and financials sectors detracted the most, while healthcare and consumer staples contributed.
• Health insurer Medibank detracted during the month as Australia’s banking regulator announced that it will apply a temporary additional capital adequacy requirement on Medibank following its review of the company’s cybercrime event. Medibank has a strong balance sheet and has sufficient existing capital to meet the adjustment. While this removes near-term upside of capital return to shareholders, precedent indicates that the additional capital requirement is likely to be lifted within 12 to 36 months. As the largest private health insurer in Australia, we believe Medibank should continue to benefit from positive industry trends, including growing participation and lower claims growth.
Contributors
• An underweight to biotechnology company CSL contributed as the company provided first-time earnings guidance for FY:24 that disappointed the market. Drivers of the downgrade to earnings guidance relative to market expectations included persistent cost headwinds in its core plasma business, as well as emerging revenue headwinds in its recently acquired renal pharmaceutical business as a key product nears loss of exclusivity. We continue to be cautious on CSL as it shifts into new therapeutic areas.
• Oracle contributed as technology stocks more broadly outperformed. The company reported better-than-expected earnings for its 2023 fiscal fourth quarter on the strength of its cloud computing offerings.
Performance Commentary - May 31, 2023 • In May, the MVE—Class outperformed its benchmark, the S&P/ ASX 300 Index, which was down 2.53% in Australian-dollar terms.
Contributors
• An overweight to the technology sector and holdings within consumer staples contributed, while holdings within healthcare and materials detracted.
• Health insurer nib was among the leading contributors to relative outperformance, as trends in health insurance customer claims continued to be benign, while rising immigration supported the student and immigrant worker health insurance segments.
• Commodity trader GrainCorp contributed, as the company reported first-half results that beat market expectations and increased full-year (and through the cycle) guidance • Software-as-a-service company Technology One, which provides back-office software to local governments and education facilities, outperformed on strong revenue trends. We see Technology One as resilient in a weaker economy.
Detractors
• Consumer packaging company Amcor detracted. During its quarterly update, Amcor reported softer-than-expected volumes due to some customer destocking and some weakness in end demand (e.g., products sold in convenience channels). We expect destocking to pass and believe that Amcor remains well positioned to benefit from stable and increasing demand for its packaging solutions in growing areas such as healthcare, hot filled drinks and sustainable packaging.
• An underweight to biotech company CSL detracted, as competitor results indicated continued strong growth in plasma collection volumes and a decline in industry donor fees. We continue to be cautious on CSL as it shifts into new therapeutic areas following its acquisition of renal pharmaceutical company Vifor Pharma.
• A lack of exposure to petroleum company Woodside Energy detracted, as the stock rose during May. The federal government’s proposed changes to the Petroleum Resource Rent Tax were less punitive to Woodside than expected by the market.
Performance Commentary - April 30, 2023 • In April, the MVE – Class outperformed its benchmark, the S&P/ ASX 300 Index, which was up 1.85% in Australian-dollar terms.
Contributors
• For April, holdings within materials and financials contributed, while holdings within technology and an underweight to the real estate sector detracted. • Gold miner Evolution Mining outperformed as gold prices rallied above US$2,000.
• An underweight to BHP and a lack of exposure to Fortescue Metals contributed to relative performance, while exposure to Rio Tinto detracted from results. The mining companies underperformed the market as the price of iron fell on concerns that Chinese steel demand was softening.
Detractors
• Amcor, a world leader in sustainable packaging, underperformed despite resilient earnings, likely because of concerns that demand for its consumer products could soften. However, although it may experience some short-term headwinds, we believe that its revenue and profits will benefit from passing on cost inflation to customers even if sales volumes only increase marginally. Amcor’s healthcare business continues to grow, and the company has a long track record of growing earnings. We see the stock as attractively priced and therefore continue to hold it, and although we do not see it as immune from headwinds, we expect it to do better than the market through a downturn.
• An underweight to biotech company CSL detracted during the month, as its US-dollar earnings benefited from a weakening Australian dollar.
Performance Commentary - March 31, 2023 • In March, the MVE – Class outperformed its benchmark, the S&P/ ASX 300 Index, which was down –0.24% in Australian-dollar terms.
Contributors
• For March, holdings within healthcare and an underweight to financials contributed, while our underweight to the materials sector and holdings within utilities detracted.
• Diagnostic company Sonic Healthcare contributed during the month as its February half-year result revealed better-thanexpected operating performance, allaying investor concerns around the impact of cost inflation and the roll-off of highmargin COVID testing on profitability. On an operating level, Sonic materially outperformed listed peers in key markets, demonstrating above industry base business growth and excellent cost control.
Detractors
• An underweight to mining company BHP detracted from results as the price of iron ore rallied at the end of the month, and BHP outperformed in line with this.
• Gas pipeline company APA Group underperformed following a government decision to build an electricity interconnector in a remote part of Queensland. While this is a long-dated project, it will render a small portion of APA’s assets less competitive. We do not see this as material to the company’s valuation, and the connection also creates upside options for APA.
Performance Commentary - February 28, 2023 In February, the MVE – Class outperformed its benchmark, the S&P/ASX 300 Index, which was down -2.55% in Australian-dollar terms.
Contributors
• For February, our overweight to the consumer-staples sector and underweight to the materials sector contributed the most, while holdings within communication services and an underweight to energy detracted.
• Within commodities, our underweight to BHP contributed. BHP underperformed the market as commodities prices fell late in the month on concerns about the rate of demand growth in China following Chinese New Year.
• Insurance broker Steadfast benefited from a rising-price environment in insurance cost, where it earns a percent of the price.
• Pallet-pooling company Brambles outperformed, as pricing discipline in a tight market allowed the company to pass rising costs through to customers.
Detractors
• Gold producers Northern Star Resources and Evolution Mining underperformed as the US-dollar gold price fell approximately US$110 per ounce over the month.
• Healthcare company Healius underperformed after first-half FY:23 results did not meet expectations and it was outcompeted by peer Sonic Healthcare.
Performance Commentary - January 31, 2023 In January, the MVE – Class underperformed its benchmark, the S&P/ASX 300 Index, which was up 6.29% in Australian-dollar terms.
Detractors
• Holdings within materials and healthcare detracted the most, while our underweight to the energy and financials sectors contributed, offsetting losses.
• The leading detractors during the month included gas pipeline company APA Group, Spark New Zealand and Amcor, as defensive stocks generally underperformed.
• Global consumer-packaging company Amcor fell as the Australian dollar rallied, reducing the value of the company’s US-dollar earnings. We continue to see stable earnings and good cash flow at an attractive price from Amcor despite a challenging economic backdrop.
Contributors
• An underweight to biotherapeutics company CSL contributed, as its US-dollar earnings were negatively impacted by gains in the Australian dollar.
• Northern Star Resources contributed as the company performed in line with gold prices, which experienced strong returns in January 2023—adding about US$100/oz.
• Rio Tinto contributed, outperforming the market as its key commodities, including iron ore, copper and aluminium, rallied and performed strongly in the month.
Performance Commentary - December 31, 2022 In December, the MVE – Class outperformed its benchmark, the S&P/ASX 300 Index, which was down –3.29% in Australiandollar terms.
Contributors
• For December, holdings within materials and healthcare contributed the most, while an underweight to materials and holdings within consumer staples detracted.
• Telecom company Spark New Zealand contributed after the company announced deals in its TowerCo business holdings and the exit of its loss-making sports business. • Gold companies, including Evolution Mining, outperformed as the gold price rallied.
Detractors
• Improved sentiment toward China demand, a result of the potential easing of COVID restrictions, helped iron ore reverse recent losses. BHP performed strongly, in line with the rebound, and our lack of exposure to the stock was among the largest detractors from the Portfolio’s performance for the month.
• Retail drinks and hospitality company Endeavour detracted on concerns about the regulation on New South Wales gaming. The impact, however, is likely to be significantly less than 1% of its group revenue. We see the company as well placed to handle any change in regulation.
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