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Global Leaders Equity Fund: November 2021


Global investors were comforted on a few fronts during the month, helping to explain why October was a very positive month for global equity returns. The FTSE All-World Index climbed 5.0% in USD terms.

  • Many corporates reported earnings ahead of market expectations and raised guidance.
  • US lawmakers passed a short-term bill to avert a government shutdown. The debt ceiling has however only been pushed out until December and so the issue may return before year end.
  • Signs from China appear to be for increasing support for financial markets. The People's Bank of China Governor Yi Gang provided assurance that there will be no contagion from the Evergrande collapse, and liquidity injections have been made.
  • The European Central Bank indicated that there will be a fresh batch of supportive measures after those put in place to support economies during the pandemic expire.

The Global Leaders Equity fund (I class USD) returned 5.1%. This was more or less in line with the index, though a little ahead of the fund peer group of 4.4%.

Microsoft was the fund’s best performing holding during the month climbing 17.6%. Driven by increasing cloud adoption the company grew free cash flow by 30% and underlying earnings by 25% which was 10% ahead of consensus estimates. Despite little news, Home Depot returned 13.3% perhaps in anticipation of better results due in November as household spending is expected to have increased as lockdowns end. After a poor reaction to a good earnings announcement the previous month, Adobe’s share price rallied 13%.

On the negative side Comcast slid 7.7%, despite third quarter results exceeding market expectations, due to comments from management indicating an outlook of reduced growth in certain segments. This was somewhat puzzling as the firm went on to confirm the continued positive overall trajectory of subscriber growth. Trading on an attractive free cash flow yield of over 7%, Comcast’s stock appears undervalued based on anticipated mid-single digit revenue growth.

Trading activity was limited during the month. As we have written recently some Chinese equities look to be materially under-priced, given their growth prospects and barriers to entry, but we are cognisant of many of the factors that help explain this and await a time to become more constructive.

We continue to believe that a more material recovery is expected on a full-year basis as precautionary savings fully unwind, and as economic activity recovers off a low base. Continued COVID-19 vaccine rollouts are a positive for the global economy as lockdown restrictions continue to be lifted. Escalating rental and housing costs will begin to be reflected in shelter prices, roughly a third of the inflation basket in the US, and hence pose an upside risk to inflation. A formal tapering plan is expected to be announced by the Federal Reserve at the next FOMC meeting.  For now, at least the backdrop looks supportive for equity prices.