Summary 

• The Global Leaders Fund (I class USD) returned 5.5% over the month, following good earnings reports. Adobe, Visa and Berkshire Hathaway were the best contributors to performance. Following a strong performance in the previous month, Samsung returns disappointed, as did those of Unilever and BP.
• 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 - including Microsoft, in which the fund invests - the S&P 500 would be in negative territory for the year.
• Trading activity was limited, with a small trim made to Home Depot following strong performance.

Market update

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 from now on will be 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.

We remain committed to identifying high-quality companies offering growth at a reasonable price.