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Source: The Bank of New York Mellon (International) Ltd as at 28.02.21
The view from our Investment Manager, 31 December 2020
Over the fourth quarter, the Company’s total shareholder return and NAV total return were 11.1% and 8.7% respectively, outperforming the benchmark MSCI All Country World Index (ACWI) which returned 8.5%. Fourth quarter performance brought the Company’s Total Shareholder Return for 2020 to 9.4%, and NAV Total Return to 8.5%. The benchmark MSCI ACWI returned 12.7% for the year.
Global equity markets continued to rally over Q4 following news of the US election result which whilst contested, delivered a degree of certainty for markets, and scientific breakthroughs with the announcement of several COVID vaccine successes. Additionally, in the US, Congress approved a $900bn stimulus package and the Fed reiterated its supportive message, stating it will continue with current levels of quantitative easing. Together these events led to a quarter that was strongly ‘risk on’ as equity markets rallied significantly on the news. In such a ‘risk-on’ environment, cyclical value and small cap stocks, those that suffered the most during the COVID crisis, experienced a late-year surge, closing much of the performance gap with large cap quality stocks that performed so well earlier in the year.
Whilst long-standing investors will have heard us say this many times, it is worth repeating, in a quarter like this, that the performance of style factors are very difficult to predict and to time. The strong style reversal this quarter may have affected many investors if they held big exposure to the large cap quality/growth stocks that have had such strong momentum for so long. Style reversals can often be painful as these portfolio risks may be exposed. The Trust’s portfolio is constructed to have relatively little risk associated with these factors, which we believe will enable the Company to deliver outperformance over the long-term regardless of these style rotations.
Within the portfolio, Baidu, a Chinese technology company, contributed most to the overall performance of the fund, returning 65% as the company posted quarterly results that topped analysts’ expectations. Baidu is benefiting from mobile-app traffic growth, supporting a recovery in core marketing and improving monetisation of recent investment. Furthermore, aerospace manufacturing firm TransDigm outperformed considerably with a 23% return. The company provides highly engineered, niche aircraft components. TransDigm has high levels of free cash flow, a strong business model, and a shareholder-oriented management team who are good capital allocators.
Alibaba was the main detractor from performance over the period as the failure of the planned IPO of spin-off online Finance company Ant Group, as well as the announcement from the Beijing government of an Antitrust probe into the company, weighed on the firm’s share price. Despite these short-term challenges, Alibaba holds a strong market position in China and is well placed to benefit from long-term growth of domestic consumer spending in the country.
The Company’s stock pickers continued to search for favourable investments for the fund throughout the quarter. A position was initiated in Compagnie Financière Richemont, a Swiss-based luxury goods company. Through its various subsidiaries, the company produces and sells a broad variety of luxury items such as jewellery and watches and has seen strong growth in several of their brands globally. The Company’s holdings in Facebook increased over the quarter as the stock pickers took advantage of share price weakness, believing the long-term fundamentals for the company remain. Facebook’s pricing power benefits from multiple self-reinforcing network effects; its broad data set gives marketers an unprecedented means to conduct personalized marketing campaigns on a global scale and the company generates strong repeat revenues due largely to the advertisers and direct targeting marketers who seek to access those consumers.
Over the quarter, we have increased the level of gross gearing to be in line with a central target level of 10%, consistent with a more neutral outlook for markets in the medium term.Monthly Factsheet Quarterly Report Sign up for updates
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