Global Leaders Equity Portfolio: June 2021

As anticipated the global equity market had a somewhat more volatile month but the FTSE All-World Index finished 1.6% higher. In line with forecasts, and high frequency data, inflation showed a strong rise. The pace of central bank asset purchases is reducing but they continue to add fuel to the heating equity market. During the month, pleasingly we saw a return to outperformance of the quality style. The Global Leaders Equity Portfolio benefited from this returning +2.6%. Perhaps this is indicative of investors looking to buckle up for a bumpier journey ahead.

Trading activity was limited during the month.

During the month the portfolio’s best performers were Kering +14.9%, Lloyds Bank +12.7% and CRH +10.2%. Kering, who reported good results and growth from Gucci in the prior month, saw broker upgrades and divested some of their stake in Puma towards month end. Similarly, Lloyds Bank, who also reported in the previous month, saw increased investor interest. Our investment thesis of the UK economy growing faster than anticipated with the vaccine roll out program looking well advanced and lockdowns ending sooner than generally expected. CRH shares have continued to benefit from talk of further infrastructure stimulus plans in the USA.

The worst performers were Alibaba -7.4%, Amazon -7.1%, Visa -2.5%. Alibaba reported a loss for the full year due entirely to the known anti-competitive fine of US$2.8bn. For the year the firm saw revenue growth of over 40% and, excluding the fine, net income growth of over 30%. Whilst recognising that the firm will face increasing scrutiny in future the valuation continues to look compelling given the expected growth profile. Having performed well last month Amazon’s share price saw some consolidation during the month.

Our central case continues to be that the rise in inflation is transitory and that we will see lower inflation later this year. If we are wrong and inflation is found to be stubbornly high, then central banks would likely be forced to raise interest rates. This would likely result in a risk-off environment. Earnings growth for equities generally looks impressive however some caution is required in extrapolating this too much given the unusual comparative base effect of last year’s pandemically induced low earnings for many companies. Given current valuations, looking forwards returns from equities ought to be more modest, and will likely continue to show a high level of volatility.