AMP Capital Income Generator (IPA0076AU) Report & Performance

The Fund produced a positive return in July, in line with market movements. Equity markets generally performed well over the month, with Australia rising approximately 2.9% and international markets returning around 2.1%. Markets have been boosted by an apparent increased likelihood of a ‘soft landing’, with falling inflation and resilient growth and employment. The Fund benefited from excess returns from its active strategies in Australian and international equity markets, and positive returns from bond holdings.

The Fund produced a negative return in May, as defensive assets struggled during the month. Bond markets fell in value as interest rates were increased in Australia (contrary to market expectations) and in the US. Other defensive sectors such as listed infrastructure were very weak during the period. Meanwhile equity markets in Australia fell, lagging their international counterparts which were also slightly negative. The Fund benefited from strong performance in higher-quality corporate bonds, while the Fund’s underlying managers on average outperformed their respective market indices.

The Fund produced a positive return in April, as market volatility and concerns over banking stress subsided. Risk markets recuperated most of the losses that occurred in March, with both bond and equity markets gaining ground despite renewed uncertainty about the durability of growth. The economic outlook for the US meanwhile has come under scrutiny as the economic environment has deteriorated further. While economic data released during April built further evidence that a recession will likely occur later this year, it is doubtful there will be a major banking crisis. The Fund’s April performance benefitted from retaining a slightly higher allocation to equities as well as stock selection. Franking credit contributions over the last year also remain very strong, with over 1% of additional franking value delivered.

The Fund produced a positive return in the March quarter, while performance over one and threeyear periods remains ahead of the Fund’s reference benchmarks and comparable indexed funds – notably so once franking credits are fully valued. The March quarter was characterised by the continued global fight against inflation, with further interest rate increases in the US and Australia, but a recognition in some areas that a pause may be required. Both the US Federal Reserve and the Reserve Bank of Australia raised interest rates twice, to 4.8% and 3.6% respectively. Bond markets, however, rallied in expectation of a pause, and then reduction in rates – possibly starting as early as the second half of this year. Global bond indices rose by over 2.0% during the quarter, while Australian indices rose by over 4.5%. Income strategies generally underperformed the broader market as large growth companies rallied over the quarter, helped along by softening interest rates and a flight from banks. The Fund’s core strategies also lagged this rally somewhat, across equities, corporate bonds and listed infrastructure.

Portfolio allocations changed only slightly throughout the March quarter. Australian equities and listed infrastructure drifted upward, while fixed income moved slightly lower. We expect to resume favouring higher fixed income, driven in part by relatively better yields, but also to reflect a slightly more defensive positioning for the portfolio, notwithstanding the focus on targeting higher-quality and earnings and dividends.

The Fund produced a small negative return in February. Most markets around the world fell in value, triggered by the US interest rate increase at the start of February and forceful comments of Fed chair Powell, who reiterated that inflation remained too high and that it was too early to relax the fight to bring it under control. Property and Infrastructure markets fell the most, by around 4%, whilst global equity markets fell by 1.5% in developed markets and 2.5% in emerging markets.

The Fund produced a positive start to 2023, generating a strong, positive return for the month. Bond and equity markets rallied together on signs of peaking global inflation and an acceleration in Chinese economic activity, while the improving inflation outlook, particularly out of the US and Europe, offered hope that the rate hiking cycle would end sooner than expected. In this environment, developed and emerging market equities returns (including Australia) were strong, at over 6%. Bond markets were also up by around 2-3% globally. The nature of the market bounce appeared to be a ‘catch up’ of poorly performing markets and securities in 2022, indicating it may be less resilient than one underpinned by improving fundamentals or lower rates. There were no major portfolio changes in January.