City of Miami General Employees & Sanitation Employees Retirement Trust

Transcription

1 City of Miami General Employees & Sanitation Employees Retirement Trust Quarterly Investment Review Q Contents Summary 1 Performance 2 Investment Strategy 3 Investment Strategy & Outlook 4 Account Management Information 5

2 Summary Performance In USD Terms (%) - Periods To 30 September Months YTD 1 Year 3 Years Since Inception Portfolio Benchmark Portfolio Value (USD) 30 June ,249, September 2016 Total Net Flows 22,978,344-42,543 Inception: 25 June 2012 Source: Northern Trust / Barings/ MSCI, Gross of fees Periods over 1 year are annualized Benchmark: MSCI EAFE Total, Net Return from July 2, 2012, previously MSCI EAFE Total, Gross Return Past performance is no indication of current or future performance. The above returns and values are based on your investment in the Fund. The remainder of the report is based on the overall investment Fund. Performance & Strategy Summary International equities had a good positive return in the third quarter and the portfolio managed to outperform the benchmark as well. Relative performance over one year is nicely ahead of the benchmark. Japanese gaming company Nintendo was the top positive contributor in the portfolio as excitement over the popularity of its recently released Pokemon Go game exceeded all expectations. UK listed technology company ARM Holdings was also a strong positive contributor as it was acquired by Japanese company Softbank. The biggest detractor from relative performance in the quarter was UK listed hospital operator Mediclinic. The company's recently acquired UAE hospitals business suffered some doctor resignations which investors felt might put some of the earnings at risk. We remain comfortable with the earnings growth opportunities at Mediclinic and the share price valuation and so have retained our holding here. We made only a few changes to the portfolio in the quarter. As already mentioned, ARM Holdings has been acquired and so is no longer a portfolio holding. Additionally, we sold our position in European aircraft manufacturer Airbus. The company continues to have a strong order book. We have become concerned that old aircraft retirements have slowed globally which we feel could presage a deferral in aircraft deliveries. We also sold our holding in Japanese industrial company Mitsubishi Electric. We did not have the highest conviction that Mitsubishi's end markets remained strong and so we felt it best to focus on higher conviction investment ideas. We began a new position in Hong Kong listed luggage manufacturer Samsonite. The company has a strong market position and will benefit in coming years from growing travel in the Asia region. We also began a new position in Danish listed jewelry retailer Pandora. Pandora sells affordable luxury jewelry items and has interesting growth opportunities in its Asian markets. The recent decline in its share price, we felt, gave us an opportunity to purchase the shares at an attractive price. Finally, we purchased a holding in South Korean personal care company LG Household and Health. The company has a strong history of profitable growth and is expanding the sale of its line of skin care products throughout the Asian region. Market Returns - In USD Terms (%) - Q MSCI EAFE Region (Net) MSCI EAFE Sector (Net) Emerging Markets Japan Pacific Ex Japan EAFE Europe Ex U.K. United Kingdom Materials Information Technology Consumer Discretionary Financials Industrials Consumer Staples Utilities Telecom. Services Energy Health Care Source: MSCI, Barings Source: MSCI, Barings 1

3 Performance - Q Total Relative Contributions (%) 1.4 Key Contributions - Geographic 2.4 Key Contributions - Economic Sector Japan Emerging Markets United Kingdom Middle East Cash Information Technology Consumer Discretionary Cash Materials Financials Allocation Selection Total Allocation Selection Total Japan 0.1 OW Information Technology 1.1 OW Emerging Markets 0.7 OW Consumer Discretionary 0.1 OW United Kingdom -0.1 OW Health Care -0.3 OW Continental Europe 0.1 UW Consumer Staples 0.2 UW Pacific Ex Japan -0.1 UW Utilities 0.2 UW Middle East -0.2 OW Telecom Services 0.0 UW Cash -0.3 OW Energy Total Real Estate 0.0 UW Industrials -0.2 UW Cash -0.3 OW Materials -0.3 UW Financials -0.2 UW Total OW = Overweight UW = Underweight. Relative return is calculated on a geometric basis. Region & Sector definitions are based on index classifications. Economic exposure may differ. Major Stock Contributions To Relative Return (%) Positive Contribution Country Sector Nintendo 1.0 Japan Information Technology ARM Holdings 0.8 United Kingdom Information Technology Sunny Optical Technology 0.4 China Information Technology Taiwan Semiconductor Manufacturing 0.2 Taiwan Information Technology Novo Nordisk A/S 0.2 Denmark Health Care Negative Contribution Country Sector Mediclinic International -0.7 United Kingdom Health Care Mobileye N.V Israel Information Technology BT Group -0.2 United Kingdom Telecommunication Services Deutsche Boerse -0.2 Germany Financials Mitsui Fudosan -0.2 Japan Real Estate Source: Barings, Gross of Fees # Aggregated Holding 2

4 Investment Strategy Major Portfolio Positions - 30 September 2016 (%) Geographic Economic Sector Active Start Acct End Wgt Bmk End Wg Relative Weight Active Start WAcct End W Bmk End Wgt Relative Weight Portfolio Benchmark 30 Sep 30 Jun Portfolio Benchmark 30 Sep 30 Jun Emerging Markets Information Technology Cash Cash Japan Consumer Discretionary Middle East Health Care United Kingdom Telecom Services Pacific Ex Japan Energy Continental Europe Real Estate Total Financials Consumer Staples Utilities Materials Industrials Total Region & Sector definitions are based on index classifications. Economic exposure may differ. Largest Positive & Negative Positions - 30 September 2016 Positive Active Position (%) Country Sector Sony 3.1 Japan Consumer Discretionary Deutsche Boerse 2.8 Germany Financials Taiwan Semiconductor Manufacturing 2.7 Taiwan Information Technology Mobileye N.V. 2.5 Israel Information Technology Royal Ahold 2.5 Netherlands Consumer Staples Julius Baer Gruppe 2.4 Switzerland Financials Mediclinic International 2.4 United Kingdom Health Care Prudential 2.3 United Kingdom Financials Bridgestone 2.3 Japan Consumer Discretionary AXA SA 2.2 France Financials Negative Active Position (%) Country Sector Nestle -2.0 Switzerland Consumer Staples Novartis -1.4 Switzerland Health Care Roche Holding -1.4 Switzerland Health Care HSBC -1.2 United Kingdom Financials British American Tobacco -1.0 United Kingdom Consumer Staples BP -0.9 United Kingdom Energy Anheuser-Busch Inbev -0.9 Belgium Consumer Staples GlaxoSmithKline -0.8 United Kingdom Health Care Commonwealth Bank of Australia -0.8 Australia Financials Siemens -0.7 Germany Industrials # Aggregated Holding Source: Barings 3

5 Investment Strategy & Outlook International equities delivered a good positive return in the third quarter bringing the year to date returns up to a positive level. Absolute returns for international equities were positive in all regions and across most sectors, the only exceptions being the Telecommunication Services, Health Care and Energy sectors. It isn't entirely clear to us what was driving markets in the third quarter. Undoubtedly some of the strong performance in the quarter was a recovery from the very weak performance of equity markets at the end of the second quarter after the surprise UK referendum outcome on EU membership. For the most part global economic growth has continued, but at a lackluster pace. This has been, more or less, the case ever since the global financial crisis ended in We do not see anything on the policy front that is likely to change this situation. If anything, the current expansion, in terms of time, is somewhat extended. A period of weaker economic growth, should it come, would not surprise us. This means that our focus on finding high quality structural growth companies that are reasonably priced remains our preferred criteria for new investments. Unfortunately, many other investors have been thinking the same thing and so today many of these types of companies are tending to be more expensive than we would like. Where, in our view, upside for certain companies is becoming limited we have been reducing our holding size and we have been reinvesting the proceeds in higher conviction ideas where we feel upside looks more substantial. For example, two of our Japanese holdings, Daikin Industries and Pigeon Corporation, are high quality companies with excellent histories of growth. We reduced both holdings in the quarter as the upside to their share prices have become more limited. However, despite the difficulty of finding reasonably priced growth stocks, we have still managed to identify a few new investment ideas that meet our investment criteria. For example, we purchased a new holding in Hong Kong listed luggage manufacturer Samsonite. Samsonite is a world leading brand with great design, manufacturing capability and distribution. The long term investment case is supported by the growing middle classes of the Asia region, who, no surprise, have the same appetite for leisure travel that we in the West have. Leisure travel in Asia remains considerably underpenetrated relative to western levels. We expect the middle class in Asia to grow as the region's wealth converges with western levels, and we also expect spending growth on leisure travel to grow right along with growing wealth. This is likely to be a very long term growth area, and provided that Samsonite continues to execute well and remain reasonably priced we expect we could hold these shares for a similarly long term. Another example of a recent purchase is Danish listed affordable jewelry company Pandora. Similar to Samsonite, we expect Pandora to grow substantially in Asia as they expand their store network and tap into rising disposable wealth in the region. Unlike Samsonite there is a larger element of fashion to the products that Pandora sell. The company's growth, as a result, depends on their staying in tune with changing fashions and this is something that we will have to monitor with this investment. One final point we would make about the current investment environment is that though overall economic growth has been lackluster it has at the same time been an exciting period for innovative growth. Economies might be growing at a pace below historical levels but innovation is thriving. Right now we are seeing rapid advances in electric vehicles, advanced driver assistance systems, autonomous automobiles, transportation as a service (Uber), digital content delivery (music and video), e- commerce and medical technology. Subject to reasonable valuations we continue to see good growth opportunities in our markets. 4

6 Account Management Information Investment Objective The objective of the Baring Focused International Equity Fund (the Focused International Fund ), is to seek long term capital appreciation and a return in excess of that achieved by the Morgan Stanley Capital International Europe Australasia Far East Index (the EAFE Index ) - Total Return with Net Dividends in USD terms. There can be no assurance that the Fund will achieve its objective. Other Information Baring Asset Management Limited Board (October 2016) Paul Thompson Oliver Burgel Julian Swayne Chairman, Non-Executive Chief Executive Officer Executive Director Director Russ Morrison Tom Finke Elizabeth Ward Executive Director Non-Executive Director Non-Executive Director Account Management Team Investment Managers Relationship Director Client Service Manager David Bertocchi / Jon Greenhill Michael Brown Laura McDonough Michael.Brown@barings.com Laura.McDonough@barings.com Important Information This document is issued by Baring Asset Management Limited, authorised and regulated by the Financial Conduct Authority and in jurisdictions other than the UK it is provided by the appropriate Baring Asset Management company/affiliate whose name(s) and contact details are specified herein. Investment involves risk. Past performance is no indication of current or future performance. The performance data does not take account of the commissions and costs incurred on the issue and redemption of units. Please note, changes in the rates of exchange may have an adverse effect on the value, price or income of an investment. This is not an offer to sell or an invitation to apply for any product or service of Baring Asset Management and is by way of information only. The information in this document does not constitute investment, tax, legal or other advice or recommendation. This document may include forward looking statements which are based on our current opinions, expectations and projections. We undertake no obligation to update or revise any forward looking statements. Actual results could differ materially from those anticipated in the forward looking statements. Version 13/SD The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. The MSCI information is provided on an as is basis without any warranties of any kind. None of MSCI, its affiliates and any other person involved in or related to compiling, computing or creating any MSCI information shall have any liability. Baring North America LLC, Independence Wharf, 470 Atlantic Avenue, Boston, MA , Tel: , Fax: