Global Equity Growth Portfolio: September 2020

Summary

  • The Global Equity Growth Portfolio returned 8.1% over the month. Outperformance was driven by the high consumer discretionary and information technology weightings and the stock selection within these sectors.
  • Global equity markets continued to climb in August with the global index rising 6.2%. Led by significant returns from a handful of stocks, the S&P 500 has now reached new highs. Without the returns provided by only five companies, of which the Global Equity Growth portfolio holds three, the S&P 500 would be in negative territory for the year.
  • Trading activity was limited.

Market update

Hong Kong-listed Shenzhou International was the portfolio’s standout performer gaining over 35% during the month. The company, a supplier of sportswear giants Nike and Adidas, reported growth in net income of 4% during the first half of 2020 and described their factory expansion plans overseas. Another eight portfolio holdings delivered double digit returns. These are exceptional times.

There were few disappointments.

When the stock market returns close to annual return expectations in a one-month period then some tempering of future return expectations is usually required. Towards the end of the month was the Federal Reserve Bank of Kansas City’s annual symposium in Jackson Hole. At this meeting US Federal Reserve chairman Jerome Powell said that the Fed’s decisions will from now on by guided by the “shortfall of employment from its maximum level” and no longer by deviations either side of full employment. He also outlined a move towards “average inflation targeting”. Overall, the implication is that monetary policy is likely to remain expansionary further into the future than the stock market had previously anticipated. This is likely to mean that asset prices continue to rise. Given the lack of available returns from other asset classes equities seem likely to continue to benefit.

Some element of inflation was previously thought likely to lead to higher interest rates and hence a re-evaluation of the market of traditional growth and value stocks. This now no longer looks likely in the medium term. It seems likely that this results in the continuation of the recent environment which is more favourable for stocks providing future earnings growth than traditional value-based investments. Long term this looks likely to lead to asset bubbles when market prices in some sectors increase over time and trade at far higher levels than fundamentals would suggest appropriate.  Though everything is easy in hindsight, bubble spotting is notoriously difficult and claims of finding them are usually made by those wrongly positioned, at least in the short term.

The Global Equity Growth Portfolio’s strategy continues to seek to identify quality companies offering above market growth at a fairly reasonable price.