Summary

• The fund/strategy returned 2.1% in the month, bringing year to date performance to 22.3%.
• CVS Health continued to perform strongly during the month, rising 13%, following good results and an increase in guidance.
• A new position was established in Berkshire Hathaway. This provides exposure to a broad base of quality US industrial companies. We believe the firm is trading below intrinsic value. 

November again saw positive equity market performance, led by constructive noises from the USA-China trade talks. Global equities rose 2.5% with the US market showing particular strength while emerging markets were relatively weak. The Global Leaders fund/strategy returned 2.1% during the month. 

Shares of CVS Health continued to perform strongly rising over 13% during the month, after the company raised profit forecasts following good results across its pharmacy services, health insurance and drugstore segments for the third quarter. Following the acquisition of Aetna, the health insurer, CVS is aiming to become an integrated healthcare services company. The transformation of some stores into so-called “health-hubs” is seeing success. Parts of retail floor space are being converted into areas where customers can obtain medical and other health related services. There was speculation surrounding a possible leveraged buyout of peer Walgreens Boots Alliance by private equity. This may also have created some interest from the investment community.

Having seen their share price rise 40% year-to-date Home Depot was the strategy’s worst performer during the month falling 6%. The reported third quarter sales growth of 3.6% was a little less than the anticipated 4.7% and they revised down full year guidance by 0.5%. The US housing market continues to look healthy with building permits at their highest level in over 12 years. 

The unrest in Hong Kong has seen visitor numbers fall to a 15-year low and the local economy fall into recession. Towards the end of the month Donald Trump signed a bill supporting the democratic rights of the people of Hong Kong. This may complicate the USA-China trade negotiations. Hong Kong represents a high proportion of sales of, UK listed, Prudential. Historically visitors from mainland China have used life assurance purchased in Hong Kong as a method of moving wealth offshore. Following the share price appreciation seen in October, the spin-off of M&G, and concerned about the near term outlook for Hong Kong, the Prudential position was sold.

A new purchase was made in Berkshire Hathaway (Berkshire). Berkshire is synonymous with Warren Buffet and Charlie Munger. The purchase provides exposure to a broad base of high quality US industrial companies. Over 60 of these companies are almost entirely owned by Berkshire.  Operations span insurance, railroads, energy, manufacturing, service & retail, and financial services. Surprisingly the company has relatively little coverage by investment banks. The company has begun to repurchase their own shares, itself recognising that the company is trading below intrinsic value. Our sum of the parts, inclusive of a 10% conglomerate discount, suggests over 25% upside to fair value.

As things turn festive it is natural to look forwards to the year ahead. For the last five, or so, years general expectations have been for lower returns from equities given how well they have done since the financial crisis. The interest rate environment has moved to be “lower for even longer”. This suggests to our Global Equity Team that the market will continue to remain supportive for equities. We continue to be selective about our exposures in order to avoid areas of obvious over valuation. All bull markets do have an end, but the quality companies that the strategy invests in ought to participate in the gains but be relatively defensive in the event of an unexpected sell off. Our aim in the Global Leaders Strategy is to provide sleep-at-night market exposure.