Price and Performance

April was a volatile month for global equity markets driven by the monetary policy guidance of the U.S. Federal Reserve and rising energy prices. Early in the month, the Fed released minutes from its March meeting which hinted at tighter monetary policy, causing equities to reprice downward. Further downward pressure on equities was caused by a sharp rise in the oil price in the middle of the month which fuelled inflation fears. The economic impacts of the war in Ukraine continue to weigh down on investor sentiment. The MSCI All Country World Index ended the month down 3.5%. The Company’s NAV Total Return was -3.6% and the Total Shareholder Return was -1.3%.

Within the Company’s portfolio, from a geographical perspective, emerging markets were the largest detractor from performance relative to the benchmark. China suffered from the strict COVID lockdown, while other emerging countries continued to face rising COVID-19 cases during the month. In contrast, exposure to the UK and Europe contributed positively to the performance of the portfolio. From a sector perspective we saw some good stock selection within the Information Technology sector, which was the biggest contributor to relative performance despite a big sell-off in tech stocks and an overweight position to IT in the portfolio. Our overweight in companies such as Fleetcor technologies (up 5.1%), Mastercard (up 6.7%) and Visa (up 0.8%) added value as did being underweight to stocks like Nvidia (down 28.7%) which saw significant pull backs. Communication Services on the other hand, was the biggest detractor from performance as the portfolio had a bigger allocation to the sector than the benchmark and the sector underperformed all other sectors over the month. Similar to technology, communications services stocks typically see their share prices fall when monetary policy tightens.

In terms of manager performance, GQG Global continued to benefit from its flexible approach. Repositioning away from tech stocks and towards energy and materials over the last few months continued to pay off in April. GQG has been the biggest contributor to relative performance and is the strongest performing manager since April 2017. Sands was the biggest detractor from relative performance over the month as the manager’s strong growth tilt, with a majority of the portfolio in technology, was not in favour in the current market climate, although it retains high conviction in the long-term earnings power of the companies that it owns.

GlaxoSmithKline plc, Mastercard Inc and Exxon Mobil Corp were the biggest overweight positions contributing to relative performance returning 9.1%, 6.7% and 8.1% respectively. GlaxoSmithKline’s Q1 sales and earnings beat analyst expectations helped by demand for its Covid-19 therapy and shingles vaccines. Revenues rose by 32% and operating profits increased by 65%, with full-year earnings guidance unchanged.  Exxon Mobil is an American multinational oil and gas company that has seen its share price rise on the back of high oil prices. The company posted the highest quarterly profit in over a decade, while Mastercard, an American multinational financial services company, benefited from the expectation of rising interest rates and the resulting rally in financial sector stocks. The company reported strong earnings per share (EPS) figures in its Q1 earnings report leading to a rise in the share price towards the end of the month. The biggest detractors from performance were Alphabet Inc and Charter Communications, both American Communication Services companies. They returned -13.9% and -17.8%, respectively. Alphabet shares dropped as revenues from its video streaming platform, Youtube, were below analyst estimates in its Q1 earnings report. Charter Communications is a leading broadband connectivity company and cable operator.  Despite delivering solid Q1 2022 results, with first quarter revenues growing by 5.4% year on year, driven primarily by growth in residential, mobile and commercial revenues, the stock pulled back over concerns about the company’s decline in residential video customers. To address the reducing Pay-TV customer base, the company is setting up a joint venture with Comcast, to bolster and enhance its video streaming offering.

In terms of stocks changes in the portfolio over the period, Jupiter took the opportunity to purchase Kyndryl, the newly renamed IT services company spun out of IBM. The shares trade on 2x earnings before tax, interest, and depreciation and amortization, and are the lowliest rated IT services company of a material size in the world when measured using price to sales. Jupiter believes the company’s prospects are much brighter than justified by the deeply depressed share price and is confident that the company’s intrinsic value will be recognised by investors over time. Lyrical sold Crown Holdings, the second largest global producer of beverage and food cans, during the month.  It is a stable business with attractive growth that Lyrical was able to purchase at just a 9x P/E multiple in January 2019. The attractive nature of the business has been recognized by the market, and the P/E multiple has expanded more than 50% to 14x. The business is now more fairly valued, so Lyrical sold it from the portfolio and replaced it with Global Payments, one of the largest global processors of credit card transactions. Global Payments is a technology company benefiting from the growth trend of electronic payments replacing cash.

As the market is still experiencing volatility, and the geopolitical situations remain uncertain, gross gearing levels have been maintained at around 9%, below our long term 10% target.