Global Equity Growth Portfolio - February 2020

Summary

  • Our Global Equity Growth strategy performed well in January gaining 0.8% against a falling market. Technology holdings performed particularly well, notably Amazon, Akamai and Microsoft. In contrast to many other sectors, technology has continued to see substantial earnings growth.
  • The Indian position was reduced in preference to the addition of NXP Semiconductor.
  • The Coronavirus has had a real impact on global markets and may present opportunities to enter high quality commodity and Chinese exposed companies at depressed prices. The Global Equity Growth portfolio is relatively well insulated from the direct effects of the possible pandemic.

Market update

Equity markets initially began the year strongly with high hopes of further progress on the USA-China trade deal and continued support from central bank policies. Mid-month recognition of the rapid spread of the Coronavirus had a negative impact on share prices. The Global Equity Growth strategy ended the month gaining 0.8% against the wider market which declined 1.1%.

During the month our Global Equity Growth strategy’s high weightings towards technology stocks benefited performance. Largely driven by growth in cloud services, Microsoft reported tremendous Q2 2020 results showing increases of 14% in revenue and 40% in earnings. The firm continues to expect double digit growth for the year ahead. The share price increased 8% during the month. With a high degree of repeat business and barriers to entry we believe that the shares remain an attractive investment. Amazon and Akamai also performed very well.

At the other end of the spectrum, Shenzhou detracted from performance, given concerns over business disruption due to the coronavirus outbreak. LVMH was similarly impacted given the likely reduction in regional travel.

The position in the India was reduced and a new position was established in NXP Semiconductor. NXP provides exposure to a number of exciting themes including the roll out of 5G technology and increasing sensor content in automobiles. The firm is engaged in a variety of projects which we understand have long gestation but promise a substantial increase in future market size. Automotive sales have been relatively depressed of late but nonetheless the shares trade on a relatively low multiple of earnings for the growth on offer.

The speed of the spread so far of the Coronavirus has outstripped that of recent pandemics. This is due to a number of factors including the mass migration within China to celebrate the New Year and the two week period during which infected people show no symptoms but are contagious. Attempts to reduce the spread of the virus will reduce economic activity. This has already had a significant impact to the near term outlook of a number of sectors globally. Earnings estimates have fallen. Commodity prices, notably oil and copper have also fallen, given the reduction in marginal demand. Our Global Equity Growth strategy currently has no direct exposure to commodity and oil. We anticipate that a short term risk off environment may provide entry points to some high quality companies with a high degree of exposure to China, and perhaps to commodity companies with high growth potential. Meanwhile the portfolio is relatively well insulated.