Summary

• Equity markets bounced back in June following May’s sell off.
• Having outperformed the market in May, the strategy did not gain as much in June given lower exposures to more volatile sectors. The Portfolio returned 5.0% thanks largely in part to Home Depot and Prudential, being the biggest contributors of the month. A detractor was the consumer staples sector which increased less than other more cyclical areas of the market.
• Equities continue to look relatively attractive as interest rates and bond yields remain low and the G20 meetings look to have defused some trade tensions. Early indications are that constructive progress has been made with US-China relations.

During the second quarter the strategy rose 3.2%, while the global equity market increased by 3.8%. Three stocks delivered returns of over 10%: Microsoft, Nestle and Allianz.

Falling cigarette volumes and increasing legislative threats have lowered sentiment for tobacco stocks in general. Philip Morris and British American Tobacco fell 9.8% and 14.4% respectively.

During June a new purchase was made in the  Anglo-Swedish pharmaceutical company, AstraZeneca (AZ).  AZ saw their revenue fall 40% in eight years due to key patent expiries from, amongst others, Crestor and Nexium. Brilinta (US$1.5bn sales) and Farxiga (US$1.3bn) will likely face generic competition in the next few years. In aggregate though the firm is through the trough of their patent valley and has five recently approved innovative products all on their way to blockbuster status. These newly approved drugs are in several trials for other potential indications. The chances of clinical trial success for these are higher than for average pharma products. With long patent lives and scope to grow the target market this will produce predictable earnings growth over the next decade. The company paid an uncovered dividend, likely to placate UK investors after rejecting a takeover offer from Pfizer in 2014, which management were comfortable with given expectations of growth from new products. A recent capital raise to reassure credit rating agencies upset equity investors. This provided an entry point to one of the most attractive growing healthcare companies.

The G20 meeting was held over the last weekend of the month. Early indications are that constructive progress has been made with US-China relations. This ought to defuse trade war concerns.