The T. Rowe Price Australian Equity Fund has been assigned a “moderate risk” designation based on its exposure to a diversified portfolio of Australian equities. This Fund may be suitable for long-term investors who wish to supplement existing holdings primarily in the Australian Market and those seeking the potential for moderate capital appreciation over time and greater diversification for their equity investments and who can accept the risks associated with investing in equity securities.
Australian Stocks Outperformed Global Peers in the Third Quarter
Over the course of the third quarter of the year, the Australian equity market delivered a modest negative return, but outperformed both its developed and emerging markets peers. This was due in part to the relatively small weighting of information technology (IT) names within the S&P/ASX 200 index. Subsequently, Australian equities were less affected by the pullback in IT-related stocks, particularly chipmakers, following their rapid rise in the previous quarter caused by market exuberance around the potential of artificial intelligence (AI) and related technologies. Energy prices rebounded on the back of expectations of tight demand-supply conditions. Iron ore prices moved higher on expectations of further measures to stabilise and lift Chinese growth while the gold price also posted gains over the quarter.
At the domestic level, the top-performing sector within the benchmark index for the quarter was energy, followed by consumer discretionary and financials. Conversely, the key underperforming sectors were health care, consumer staples, and IT.
10-year U.S. Treasury bond yields spiked, rising by 76 basis points to 4.57% on the back of expectations that interest rates in the U.S. would stay higher for longer to combat inflation and on concerns about a blowout in the U.S. Federal budget deficit, resulting in significantly more Treasury issuance. Similarly, Australian 10-year bond yields rose by 47 basis points to 4.49% as fears of stubbornly high inflation grow. The Australian dollar fell modestly against its U.S. counterpart.
IT Boosted Performance
The IT sector was one of the weakest areas of the benchmark over the quarter; however stock selection in the space was a significant contributor to the portfolio’s performance. p Our position in SiteMinder, a developer of software for the hotel industry, was a notable area of strength within the sector. Its shares rose sharply, recovering from weak share price performance in the second quarter. Investors were encouraged by a positive quarterly update showing an acceleration in customer growth and revenues. The company also announced an earlier-than-expected move to being free cash flow positive. SiteMinder continues to grow its customer base and is seeking to launch new products in the coming year to provide enhanced services, which should also accelerate revenue growth.
Real Estate Contributed Positively
Within the real estate space, our choice of securities supported portfolio returns. p Industrial property specialist Goodman Group was a key contributor, boosted by solid FY23 results, including robust earnings growth. Management’s disclosures gave investors more comfort about the scale, durability and profitability of the development profits through to the end of the decade.
Beneficial Stock Selection in Communication Services
Our choice of securities among communication services worked in the portfolio’s favour over the review period. p Our position in growth name Carsales.com was beneficial. The company, which owns the dominant automotive classifieds website in Australia, saw its shares perform strongly following a solid FY23 result and an outlook commentary that highlighted continued resiliency in the Australian business and a better-than-expected growth outlook in both the U.S. (Trader Interactive) and Brazil (Web Motors). p Domain was another contributor to portfolio returns. Although the online property classifieds specialist reported lower FY23 earnings, citing “challenging business conditions”, investors were encouraged by management’s outlook, which included expectations of a recovery in new listings across key markets for FY24.
Health Care Curbed Returns
The health care sector was the weakest area of the benchmark over the third quarter. It was also the biggest drag on the portfolio’s relative and absolute performance, due to both our choice of securities and our overweight positioning. p ResMed shares declined sharply after the company reported gross margins that were below market expectations. This underperformance was compounded by broader equity market concerns that new weight-loss drugs (GLP-1s) could erode demand for continuous positive airway pressure (CPAP) machines. We continue to see a long growth runway ahead for ResMed. p Our holding in biotechnology specialist CSL also weighed on portfolio returns. Its shares came under pressure over the quarter; despite reporting strong sales and profit growth, the market continues to be concerned about the pace of margin recovery in CSL’s immunoglobulin business. While the speed of margin recover is a little disappointing, we think this does not detract from the longer-term positive thesis and strong competitive position of the business.
Industrials and Business Services Held Back Relative Returns The industrials and business services sector was a source of relative underperformance over the review period, due to our stock selection. p Shares of Transurban, a toll road owner and operator, sold off.
The Australian Competition and Consumer Commission’s
decision to oppose the company’s proposed acquisition of a majority interest in Horizon Roads weighed on sentiment. p APM Human Services also hindered investment returns over the period. Investors were disappointed by lacklustre earnings from the provider of health and human services. Longer term, we believe that we are close to the cyclical lows in earnings and margins due to record low unemployment and that the company could resume strong earnings growth in FY25 as this reverses, which could act as a catalyst for the stock to rerate.
What is T. Rowe Price Australian Equity T. Rowe Price Australian Equity is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Large Growth 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 T. Rowe Price Australian Equity has Assets Under Management of 100.88 M with a management fee of 0.6%, a performance fee of 0.00% and a buy/sell spread fee of 0.15%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the T. Rowe Price Australian Equity has returned 1.95% in the last month. The previous three years have returned 6.69% annualised and 13.42% each year since inception, which is when the T. Rowe Price Australian Equity 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 T. Rowe Price Australian Equity first started, the Sharpe ratio is 0.56 with an annualised volatility of 13.42%. The maximum drawdown of the investment product in the last 12 months is -6.91% and -26.83% 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 T. Rowe Price Australian Equity has a 12-month excess return when compared to the Domestic Equity - Large Growth Index of -4.07% and -1.38% 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. T. Rowe Price Australian Equity has produced Alpha over the Domestic Equity - Large Growth Index of -0.11% in the last 12 months and -0.1% since inception.
What are similar investment products?
For a full list of investment products in the Domestic Equity - Large Growth Index category, you can click here for the Peer Investment Report.
What level of diversification will T. Rowe Price Australian Equity provide?
T. Rowe Price Australian Equity has a correlation coefficient of 0.98 and a beta of 0.76 when compared to the Domestic Equity - Large Growth 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 T. Rowe Price Australian Equity and its peer investments, you can click here for the Peer Investment Report.
How do I compare the T. Rowe Price Australian Equity with the ASX Index 200 Index?
For a full quantitative report on T. Rowe Price Australian Equity compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the T. Rowe Price Australian Equity to do my own analysis?
To sort and compare the T. Rowe Price Australian Equity financial metrics, please refer to the table above.
Has the T. Rowe Price Australian Equity 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.
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Comments from SMSF Mates
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Performance Commentary - June 30, 2023 Australian Stocks Move Higher Over Second Quarter
Over the course of the second quarter of the year, the Australian equity market delivered positive returns, but underperformed its developed markets peers. This was due in part to the relatively small weighting of information technology (IT) names within the S&P/ASX 200 index, meaning Australian equities did not benefit to the same extent as IT-related stocks, particularly chipmakers, which soared on market exuberance around the potential of artificial intelligence (AI) and related technologies. In contrast, many commodity prices, including those for oil, iron ore, and copper, fell over the quarter on concerns over global demand.
At the domestic level, the top-performing sector within the benchmark index for the quarter was information technology (IT), followed by utilities, industrials and business services, real estate, energy, and financials. Conversely, the key underperforming sectors were health care, materials, and consumer discretionary.
The 10-year U.S. Treasury bond yield rose by 32 basis points to 3.81%. Similarly, Australian 10-year bond yields increased by 72 basis points to 4.02%. A resilient labour market and softening but still elevated inflation led the Reserve Bank of Australia to raise the cash rate target by a total of 50 basis points over the quarter to 4.1%. The Australian dollar ended the review period broadly unchanged against its U.S. counterpart.
Performance Commentary - March 31, 2023 Over the course of the first quarter of 2023, the Australian equity market delivered positive returns, rising alongside its developed and emerging markets peers. The quarter got off to a strong start in January as investors focused on easing inflationary fears and hopes that central banks could start slowing their pace of interest rate hikes. Iron ore prices also rebounded in January, rising on the expectation of an improving Chinese economy in 2023 following the removal of covid restrictions in December. However, following the collapse in March of Silicon Valley Bank in the U.S. and concerns around potential contagion, investors focused on the outlook for economic growth. Against this backdrop, energy prices remained under pressure while gold prices rose on the back of falling real rates. Iron ore prices took a breather as investors looked for evidence of the strength of China’s economy following its re-opening.
At the domestic level, the top-performing sectors within the S&P/ASX 200 Index for the quarter included information technology (IT), consumer discretionary, communication services, materials, and consumer staples. Conversely, the key underperforming sectors were financials, energy, real estate, and utilities.
The 10-year U.S. Treasury bond yield fell by 41 basis points to 3.47%. Similarly, Australian 10-year bond yields declined by 75 basis points to 3.30%. The Reserve Bank of Australia raised the cash rate target by a total of 50 basis points over the quarter to 3.60%. The Australian dollar weakened modestly against its U.S. counterpart.
Performance Commentary - December 31, 2022 Over the course of the final quarter of 2022, the Australian equity market delivered robust returns, rising alongside its developed and emerging markets peers. Signs of cooling inflation led global investors to start anticipating that major central banks would slow the pace of their interest rate increases. The prices of several key commodities, including iron ore and copper, rebounded as China started to exit from its zero-COVID policy. Conversely, concerns over a slowing global economy and potentially weaker demand weighed on oil prices.
At the domestic level, the top-performing sectors within the S&P/ASX 200 Index for the quarter included utilities, materials, financials, and real estate. Conversely, the key underperforming sectors were consumer staples, health care, and information technology (IT).
10-year U.S. Treasury bond yields were broadly unchanged, ending the quarter at 3.88% as markets weighed up the likelihood of a slowing pace in rate hikes. The Reserve Bank of Australia (RBA) raised its target cash rate in each month of the quarter, by 25 basis points at a time and reached 3.1% by the end of December. The move helped send yields on Australian 10-year bond yields higher, rising by 42 basis points to 4.05% by the end of the year. The central bank noted in its most recent statement that inflation in Australia remains too high and that the RBA is determined “to return inflation to target and will do what is necessary to achieve that outcome.” The Australian dollar rose on the back of U.S. dollar weakness.
Performance Commentary - September 30, 2022 The portfolio underperformed the S&P/ASX 200 Total Return Index for the three-month period ended September 30, 2022.
Relative performance drivers:
– Our underweight allocation and stock selection in financials worked against the portfolio.
– Underweighting materials also had a negative impact.
– Our choice of securities in consumer staples added value.
Additional highlights:
– The recent rally has given us the opportunity to further reduce our exposure to global cyclicals and continue to increase our position in defensive high-quality businesses that have been left behind.
– We expect the more cyclical parts of the market to come under earnings pressure, which should see quality, defensive, and growth companies outperform as their earnings will likely be more resilient.
Performance Commentary - June 30, 2022 The Australian equity market fell sharply in June, recording its worst monthly performance since March 2020. Over the month, Australian equities underperformed developed and emerging markets in local currency terms. The best performing sectors for the month included consumer staples, energy, and health care while the key underperforming sectors were materials, financials, and information technology. Concerns over a slowing global economy and demand destruction saw oil prices pull back. Iron ore prices also fell sharply as China’s zero-COVID policy continued to weigh negatively on economic activity and therefore demand for iron ore. Gold prices declined modestly.
With U.S. inflation remaining higher than expected, 10-year U.S. Treasury bond yields rose by 13 basis points* to 2.98%. Similarly, Australian 10-year bond yields continued to sell-off, with yields rising by another 32 basis points to 3.66% in June. Concerns over slowing global growth saw the Australian dollar weaken against its U.S. counterpart.
Performance Commentary - March 31, 2022 Australian Equities Outperformed Their Global Peers in Q1 Australian equities delivered modest returns in the first three months of 2022 but outperformed most of their developed and emerging market peers. Investor sentiment globally was weighed down by Russia’s invasion of Ukraine and the uncertainty around the geopolitical and economic implications of the crisis. Energy and other commodity prices surged, adding to existing inflation and supply chain fears.
The invasion of Ukraine by Russia led to a spike in oil prices; Russia is one of the key members of OPEC+ and the largest supplier of gas to Europe, particularly Germany. With Europe dependent on Russian gas for its energy needs, there was concern it could use this as a weapon to weaken or punish European countries for providing support to Ukraine. The gold price increased as the Ukrainian-Russian conflict led to haven buying.
Globally, there was an aggressive sell-off in growth and higher multiple companies and a rapid rotation to value stocks. At the domestic level, the top performing sector of the S&P/ASX 200 Index for the quarter was energy, reflecting the jump in the oil price. The materials sector was another strong performer, reflecting higher prices for many key commodities, particularly metals. Other outperforming sectors included utilities and financials while the key underperforming sectors were information technology (IT), health care and consumer discretionary.
Performance Commentary - January 31, 2022 The T. Rowe Price Australian Equity Fund underperformed the benchmark in January. Good performances were posted by BHP, Harvey Norman, and Computershare. Notable underperformers included Megaport, Xero, and IDP Education.
The month was characterised by an aggressive sell-off in growth and higher multiple companies and a rapid rotation to value stocks, driven by concerns over higher inflation and rising interest rates. Unsurprisingly, given this backdrop, higher growth companies in the portfolio such as Megaport, Xero and IDP Education struggled and fell sharply during the month. On the positive side, BHP performed strongly in a weak market. This was driven by a combination of fundamental improvement in demand in China for iron ore and a large re-weighting upward in the local index following the collapse of its dual-listed company structure. As a result, BHP yet again became the biggest stock in the Australian market, with an index weight of around 11%.
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