Will the rate cut benefit consumer spending-focused funds?
With the Reserve Bank announcing rate cuts to 1.25 per cent for the first time in 33 months in an attempt to stimulate the economy, many economists have questioned whether the savings will see consumer spending increase, as hoped, or just prompt borrowers to pay down debt faster.
As living costs rising and wages stagnate, consumer discretionary spending is arguably in need of a push. While it’s not yet clear whether the rate cut will contribute to such an outcome, Money Management used FE Analytics to see which funds stand to gain the most should it occur.
There were seven funds in the Australian Core Strategies universe that had at least 20 per cent of their funds under management (FUM) in the consumer discretionary sector, while still being predominately invested in Australia (with domestic assets accounting for at least 90 per cent of FUM).
Of these, only one had held strong in what have been tough times for encouraging extra spending. The DDH Selector Australian Equities fund, which held nearly 30 per cent of its FUM in consumer products, was the highest performer across the last five, three and one-year periods, and the last six months. It returned 16.01, 15.71, 14.04 and a whopping 22.64 across these timeframes respectively.
Most other funds with the above 20 per cent minimum exposure bore the signs of a weakening economy, each falling below the returns of the S&P ASX 200 Consumer Discretionary (Sector) index for the six months.
Three trusts even fell into the negatives when looking at returns over the last year, with the Bennelong Concentrated Australian Equities, Bennelong ex-20 Australian Equities and Ganes Value Growth funds returning -7.27, -6.07 and -2.71 respectively. As the chart below shows, it was only the DDH offering, the Spheria Opportunities fund and the Dimensional Australian Small Company trust that beat the index’s returns of 5.05 per cent for the 12 months to yesterday.
AMP Capital chief economist, Shane Oliver, acknowledged that, with consumer spending remaining constrained as well as housing construction falling, non-mining investment staying limited and US President Donald Trump’s trade wars impacting demand for global exports, growth was likely to remain below two per cent this year despite the rate cut.
“To achieve its aim of lowering unemployment and boosting inflation, the RBA likely has more work to do,” Oliver said, suggesting there will likely be another rate cut to come.
Looking at the last month’s returns to 13 June, so tracking the fortnight before and after the rate cut and including the period when the Reserve Bank strongly signalled a cut was to come, the S&P ASX200 Consumer Discretionary index returned 1.95 per cent.
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