OUR PORTFOLIO

The view from our Investment Manager, 31 March 2020

Over the first quarter of 2020, Trust’s total shareholder return and NAV total return were -23.1% and -20.9% respectively, underperforming the benchmark MSCI All Country World Index (ACWI) which returned -16.0%. Leverage in the Trust was detrimental to NAV returns over this period, and the widening of the discount to NAV hurt shareholder performance.

The Covid-19 pandemic created a severe impact on markets globally, with the likelihood of a global recession leading to the fastest equity market decline of this magnitude in history. The sharp rally towards the end of March was also one of the largest 3 day market gains in history, indicating the level of market volatility that was experienced. We believe that with markets moving this far and this fast, it is unlikely that every company in the world is perfectly priced relative to its long-term fundamentals and as such, opportunities may be presented. However, as the market fell, the flight to safety (large cap quality and liquidity) created a very narrow market leadership and was a more extreme version of some of the challenging trends we observed in 2018-19. The magnitude of this trend has now led to truly extraordinary levels of performance difference between size and style factors in recent history and we think this provides a small number of compelling opportunities for long-term investors.

In light of the market turmoil and the disruptive impact of coronavirus, we have been busy keeping in touch with our managers to understand how they are dealing with lock-down procedures and market volatility. We are pleased to report that all our managers are continuing business as usual, despite having to conduct them at home, and that all managers have taken this as an opportunity to re-underwrite the investment thesis of their companies. As expected, this has led to some turnover in the portfolio, as managers exit the companies which they feel had suffered deterioration in fundamentals and purchase other higher quality companies that have now become more attractively priced. We have heard a number of the managers describe this as the most exciting time to be an active stock picker, as suddenly many companies that they had closely followed but could not justify the price of purchase have now become very compelling long-term investment opportunities.

A position was established in late March in Booking Holdings, a US listed online travel agent and the global leading company for online accommodation reservations. The manager believes the balance sheet remains sufficiently strong, in spite of the weakening share price due to the collapse of global travel. Furthermore, the company has a strong market position which is expected to dominate the travel industry when the market recovers post the Coronavirus outbreak. Siemens, a large conglomerate operating principally in Industrial engineering, energy, healthcare and infrastructure, also has a strong balance sheet with positive cash generation. It has interesting long-term opportunities in pioneering energy-efficient, resource-saving technologies. The company was also purchased in late March, at a valuation close to its historical lows.

At the total portfolio level, we would describe our position as cautiously optimistic. We continue to retain a balanced positioning, ensuring that we maintain a well-diversified exposure to a range of styles, despite what some might view as glaring attractiveness in certain parts of the market. We think that the increased market volatility and dispersion of outcomes have allowed our managers, each with its own unique investment style, to collectively build a portfolio that we expect will deliver significant long-term value to investors in the Trust.