The December quarter saw a weaker USD (-5.5% against the AUD), lower unemployment in Australia, higher commodity prices, higher inflation rates in Australia (and incredibly high compared to a year earlier), a positive quarter for equity markets but volatile, higher Australian 10-year government bond yields, and an inversion of the US 2Y-10Y bond yield spread.

Inflation, a stronger USD, and central bank interest rate hikes shattered most markets over the September quarter. The US Federal Reserve was the catalyst for much of this as inflation became stickier and the Fed became more aggressively hawkish. The scale and breadth of drawdowns across asset classes were severe.

We wanted to share an update with you from Australian Ethical, who are one of the managers within the AAN Sustainable Growth Model. What follows has been published without edit or modification from this post. This update includes links to several articles that have been written for investors.

The first half of 2022 was characterised by the harsh reality of elevated inflation and the combative stance taken by central banks around the globe. Already elevated inflation indicators moved higher, causing central banks to hike interest rates further than markets expected. Slower economic growth and recession fears are now front of mind.

As we continue to see significant market volatility, we thought we would provide you with an update on what the Committee has been implementing in the Investment models as we move through this investment cycle.

Decades of peace in Europe were shattered on February 24^th, 2022 when Russia invaded Ukraine. We extend our thoughts and sympathy to everyone affected and our hearts go out to all those suffering. What is reassuring is the amount of support throughout the world in standing with Ukraine. 

As many of you will note, the AAN Investment Committee have long maintained the policy of rebalancing models on a quarterly basis, and this was actioned last Friday. This process involves trimming positions that have performed well, topping up those that haven’t and as part of this rebalance a number of changes were made to the Core, Growth and Australian models, and we wanted to share those with you. 

This week we share our latest collection of insights across our investment teams, as we provide detailed fund commentary of how each portfolio has performed for the December quarter, performance highlights, what the economy is doing and an update on markets in general.

Our diversified models continue to perform well compared to their peers, benchmarks and objectives. When markets rally strongly, as they have, our quarterly rebalancing allows for profits to be taken and underperforming assets to be topped up. This disciplined approach to asset allocation remains a key part of our investment philosophy.