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Global Leaders Equity Portfolio: November 2020


  • A second wave of COVID-19 cases across the US and Europe has increased investor nervousness, alongside uncertainties around the US election and Brexit negotiations.
  • Earnings have been largely better than expected, although share prices within defensive sectors such as pharmaceuticals and staples have lagged, partly due to pricing pressures which may be introduced by a new US president.
  • Communications and consumer sectors led the way while, once again, the energy sector saw renewed pressure on the emergence of higher COVID-19 infection rates and a lack of action to curtail oil supplies by OPEC.

Market update

Global equity markets continued to decline in October with the FTSE All World Index falling 2.5%.

A second wave of COVID-19 infections resulted in increased numbers of lockdowns being reintroduced in European countries. Infections in the US continued to climb, though election campaigning continued apace. During the month, mega capitalisation stocks underperformed smaller companies, this was particularly true in the US where market expectations of a Democrat win were thought to make these more favourable. Traditional value-based stocks also generally performed better than stocks trading on higher multiples.

The Global Leaders portfolio (USD) declined by 3.4% with poor performance from the pharmaceutical and consumer staples sectors. Despite good quarterly updates from the portfolio’s healthcare stocks, these performed relatively poorly, all falling between 8% and 10%. This was likely due to speculation of increased pricing pressure of pharmaceuticals that a new US president could bring. The premium that the US pays for drugs has been a multi-decade issue. As for other nations, however, pharmaceuticals represent around 10% of overall healthcare spend and are well known to reduce overall healthcare costs when administered properly. The lobbying power of the pharmaceutical industry in the US is not to be underestimated, given the amount of innovation the industry provides, the jobs it supports and tax revenues it provides. In the near term, the incredible efforts by the industry to provide solutions to the COVID-19 crisis may result in a halo effect around the sector. Our belief is that the eventual impact of any drug-pricing pressures is likely to be more nuanced than implied by the market move in pharmaceutical company share prices last month. 

At a stock level Alphabet, BlackRock and NXP Semiconductors provided the best returns of companies held. Alphabet gained 10.3% during the month, having reported sales growth of 15% and operating profit of 22%, both ahead of consensus estimates. This was due to a faster-than-expected recovery in advertising spend since August. While the US Department of Justice recently cited the firm in an anti-trust case, the company looks set to argue that Google provides consumers with significant choice. Third-party reports are that the firm may have to disentangle such things as automatic selection as a search engine with Apple, which is rumoured to cost Alphabet around US$10 billion a year (for context approximately 25% of net income).

Having preannounced strong results, NXP Semiconductor gained 8.3%. The firm reported even more impressive figures than had been expected, given a rebound in auto manufacturing and improved guidance.

BlackRock reported results ahead of expectations and gained 6.3% during the month. Assets under management were reported at a staggering US$7.8 trillion and the firm saw net inflows of US$129 billion during the quarter. The holding was trimmed during the period in favour of JP Morgan.

At the other end of the leader board, were Visa, Reckitt Benckiser and the pharmaceutical stocks discussed above. Visa was the portfolio’s worst contributor during the month. Though the firm reported results ahead of market expectations, the continued reduction in cross-border transactions is putting pressure on results, given the high profitability that international transactions usually provide.

Reckitt Benckiser reported impressive growth during the month and raised guidance. While the share price move during the month was disappointing, the long-run growth prospects remain encouraging. The refocused management team appears to be doing the right things with segments reversing market share declines across categories. 

The sizeable position in the consumer staples sector was reduced with the complete sale of Kerry Group. The sector has performed very strongly over the last few years. Underlying consumer staples businesses tend to be very robust, however, when trading on higher multiples this is not always the case for their equities. The team’s anticipation of an economic recovery into 2021 has encouraged us to shift slightly more into stocks which benefit from cyclical upswings.

November will be a volatile month following a closely fought US election and possible announcements of phase-three trial results of coronavirus vaccines. The team has planned positioning for a range of US election result scenarios. Based on past performance of pre-election polls the only thing we can really be sure of is a short period of uncertainty. Buckle up!