Global Equity Growth Portfolio: July 2021

Summary

• Global liquidity remains high, and global equity markets continued to climb during June.
• The Global Growth Portfolio returned 2.2% which is the same as the EAA Fund Global Large-Cap Growth equity peer performance and somewhat superior to the FTSE All- World Index return of 1.2%
• The position in Chinese clothing materials manufacturer Shenzhou was sold and a new position taken in British DIY chain Wickes, as well as a smaller stake in Russian Fintech firm Tinkoff. 

During the month headline inflation in the United States reached over 5% for only the second time in 30 years. Financial conditions remain at their loosest levels in over 40 years. With this backdrop global equities continued to increase in price. The US stock market again reached all-time highs. 

Stock specific events drove performance. Axon returned 25.8%, Adobe returned 16% and Eli Lilly 14.9%. Financial holdings performed relatively poorly with Ping An -10.0%, Tencent -5.7% and Lancashire -5.5%. 

Trading activity was elevated during the month:

Shenzhou the third-party manufacturer, of clothing and clothing materials, for sportswear companies was sold on valuation grounds and concerns that the spread of COVID-19 to certain countries might impinge on operations. Since we first purchased for the strategy in October 2019, Shenzhou shares delivered a total return of close to 85%, over 30% ahead of the global Index and 17% ahead of Consumer Discretionary peers.

Proceeds were invested in Wickes, a UK DIY supplier, and Tinkoff. Wickes was recently spun off from Travis Perkins, and is well positioned to benefit from an increase in housing transactions and a consequent drive for home improvement. The company trades around 30-40% lower multiples than global peers which we think reflects scope for a substantial re-rating.

A small position was taken in Russian financial technology company Tinkoff. The firm is seeing rapid expansion with net loan growth expected at 30% for the coming year. The group continues to attract clients with easy to use services and intends to announce entry to new geographic locations imminently. Though there are some mitigating factors in Tinkoff’s case, any investment in Russia should always be considered high risk. To balance this the position in Schroder’s Asia fund was reduced.

We continue to believe that a more material recovery is expected on a full-year basis as precautionary savings unwind, and as economic activity recovers off a low base. As vaccines continue to be rolled out, and lockdown restrictions continue to be lifted we anticipate further positive economic news. Inflation is likely approaching its peak and is expected to slow in the second half of the year. While talks of tapering by the Fed are expected to commence in the second half of the year, we believe that monetary policy will likely remain largely accommodative and that any reduction in liquidity from the central bank will be gradual. With market valuations elevated, forward looking long-term expectations of equity market returns are more moderate and come with higher volatility. Buckle up!