February 21, 2022

In the Frame - Issue 13, A message from Hue
Managing Director

A message from Hue: What I saw in January 2022

2022 started off with a bang, global equity markets tumbled, as investors focused on the course of monetary policy over the next 12 months. Inflation data released from the United States showed that inflation was tracking above 7% on an annualised basis. These extreme readings caused investors to rotate out of high-growth tech names and into value names. We also saw a plethora of company earnings from the United States, which were generally viewed negatively by the market (Netflix, Facebook, Peloton Interactive). For January, the Nasdaq, S&P500, and Russell 2000 were down -8.52%, -5.26%, and -9.66%. The S&P/ASX 200 performed relatively well, it declined by -6.35%.


On the 21st of January, the S&P/ASX 200 sliced through it’s 200-day moving average. This is significant because of the change in market volatility which is generally seen when this happens. When the market is trading above this level, it has an annualised standard deviation of 11.4% vs 20.4% when below. Essentially more volatility. Our market insights section covers this in more detail.

Rotation expansion

In prior months, I have written about the rotation that we have seen within global equity markets. Previously the most obvious rotation occurred between high growth/tech and value companies, however in January, this rotation spread to other assets. We saw commodities such as lumber, corn, wheat, and soybeans all accelerate to the upside, as investors priced in further demand increases. We also saw fixed income markets start to aggressively price in further rate increases.

Portfolio performance

During January, we had challenging conditions within financial markets, which resulted in underperformance for both of our strategies. Our global macro strategy dropped -7.51%, while the Long Short Australian Equity strategy declined by -11.24%.

Equity investments held within the Frame Futures Fund (FFF) declined by -7.99%, however, we saw positive contributions from our Fixed Income, Commodity, and Currency investments, they added +0.45%, +0.14%, and +0.22% respectively.

The Frame Long Short Australian Equity Fund (FLSAEF) declined by -11.24%, as the systematic risk management of the strategy kicked into gear by selling high beta names and increasing cash levels. 

Top equity contributors were Fortescue Metals Group Ltd (ASX: FMG), Seven Group Holdings Ltd (ASX: SVW), and Ampol Ltd (ASX: ALD). The largest detractors were Nine Entertainment (ASX: NEC), Sonic Healthcare (ASX: SHL), and GrainCorp (ASX: GNC).

Final thoughts

Although January was a challenging month for both strategies, I am very happy with the way the FLSAEF reduced exposure as markets fell. This proactivity, while somewhat painful in the short term, ensures long-term out-performance because it avoids large drawdowns over a full investment cycle. I am positive heading into the reporting season and look forward to seeing how our universe of companies performs.

If you would like to discuss any of these points, please email me at hue@framefunds.com.au or call our office on 02 8668 4877.

Hue Frame
Managing Director

Past performance is not an indicator of future performance. This is not intended to be financial advice and does not take into account any particular person’s circumstances. Before relying on this information, please speak to an independent financial adviser.


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