I have attached our latest Macro Outlook presentation. A key concern we had in Q4 last year when we sent the original outlook for 2022 was the impact of the potential shock to markets from the pivot away from super-abundant liquidity. That episode has clearly played out since January. As a result, we had a quality bias in our portfolios with a focus on companies/diversified baskets with; high free cash flow, low balance sheet leverage and sustainable dividend yield plus growth.
One third of the portfolio has also been in Asia Pacific Banks (also with a quality filter) as a positive carry hedge for higher rates/yields. Our Asia Pacific Banks basket is +9.3% ahead of Asian equities already so far year to date. While we had a drawdown at the end of January, the low vol Asian Macro Fund is now positive again year to date and materially ahead of regional equities and US equities.
We have used the recent rally from the January lows to reduce some net equity exposure in the funds as we are still concerned about another phase of weakness into March. However, we are very bullish on Asia Pacific following the under performance versus US markets last year. Asia will also benefit from credit easing in China. Moreover, Asia Pacific now trades at a 64% discount to US equities, the largest since the 1997/1998 Asian Crisis. The region also offers diversification and industry exposure not broadly available in Australia.
Note, since June last year we have also been running a more levered version of Asia Macro – the Asia Macro Opportunities Fund. That was +15.3% in 2021 and materially outperformed the region (-1%) last year. On a risk-adjusted basis both funds performed well in 2021 versus regional markets.