- Central banks eased during the month
- The fund returned 0.8% versus the MSCI ACWI Index which returned 2.1%
- More cyclical sectors and traditional value stocks performed well. The fund has low exposure to these areas.
September saw a rebound in equity markets with the MSCI ACWI Index rising 2.1%. Disappointing economic data saw most central banks easing monetary policy. The more cyclical sectors that performed badly in August saw the best performance. There were no stock specific disappointments however the Global Leaders strategy, with higher exposure to less cyclical sectors such as consumer goods and healthcare, saw a more modest performance of +0.8%.
Of particular note was the performance seen by “traditional value” stocks i.e. those trading on low multiples of earnings. One such traditional value stock held by the strategy is AT&T. Activist investor Elliott Management Corporation unveiled a position in the company during the month. They highlighted the attractiveness of the valuation and, as observed in some of our recent internal research, the wastefulness of management in making tangential acquisitions rather than focusing on their core offerings. The stock was one of the strategy’s best performers during the month.
Shares of BP and Shell also performed well. During the month a drone attack on Saudi Arabia resulted in the biggest ever supply shock and a sharp increase in the oil price.
Following strong performance, positions in both Visa and Adobe were reduced. A new position in Blackrock was added. The company has scale benefits, sound management and good growth prospects into China in the longer term. Operating margins have expanded despite asset management fee pressures demonstrating sound expense management. Although asset managers are geared to the market, Blackrock mostly manages index linked funds (66% of AUM) which do not have the same performance imperative as active asset managers. Net inflows have been strong, and even stronger in bull markets.
A number of global flashpoints remain of interest with the potential of escalation of conflicts almost ever present. Hopefully the Hong Kong unrest has peaked following the violence seen during protests arranged to mark the 70th anniversary of the founding of the People’s Republic of China. Europe’s problems should be settled more peacefully with resolution of Brexit, one way or the other, likely to result in a return of confidence in the relevant parts of local equity markets. While certainly not immune the strategy’s holdings are relatively less sensitive to geopolitical trouble than much of the wider market.
The investment environment might well continue to favour traditional value stocks over the next few months. The team continues to search for companies exhibiting high quality and offering growth at a reasonable price. The premium for growth companies has increased over the last few years. High quality but lower growth companies are currently trading on more reasonable prices and are key hunting grounds for further work by the team.