- The Global Leaders Portfolio declined 0.4% during the month in contrast to the global index, FTSE All World, return of +0.7%.
- Inflation prints were higher than expected and market volatility increased.
- Chinese stocks performed particularly poorly in response to lower credit impulse, regulatory concerns, and heightened fears of Covid-19 variants.
After a calm start, July saw increased equity market volatility though by month end the FTSE All World Index climbed 0.8%. Elevated inflation statistics were again ahead of consensus expectations. Technology and more traditionally defensive sectors such as healthcare performed better than more cyclical sectors such as energy and consumer discretionary. The recent changes in fund positioning were therefore positive at a sector allocation level. However, China’s credit impulse became worse, which combined with continued negative regulatory concerns and heightened fears over further spread of COVID-19, saw weak performance from Chinese exposed equities.
The portfolio’s top performers for the month were Alphabet +7.9%, Eaton +6.7% and Adobe +6.2%, and worst included the Chinese holdings Alibaba -13.9% and Ping An -10.5%, along with Reckitt Benckiser -13.1%.
Many of the portfolio’s holdings reported their earnings in July. One of the most encouraging sets of results came from Alphabet who reported sales growth of 25% and earning per share growth of 31%, both 10% above consensus, as advertising continues to rebound. Reckitt Benckiser surprisingly disappointed and lowered earnings expectations for the full year by around 6% mostly due to input price inflation. Cost inflation has not been unique to the company, but in contrast to other staples companies the firm’s management of investor expectations has been poor. Our expectations for a turnaround in the company’s growth prospects remain intact but greater clarity ought to be provided at the company’s seminar in mid-September.
During the month, trims were made to CRH and Blackrock with the proceeds allocated to a modestly higher cash allocation. Our expectation is that higher quality stocks, such as those held in the portfolio, will perform more favourably in the more volatile market ahead.