Baring Focused International Equity Fund

Transcription

1 Baring Focused International Equity Fund 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 June Months YTD 1 Year 3 Years 5 Years Since Portfolio Benchmark Inception Portfolio Value (USD) 31 March June 2018 Total Net Flows 424,624, ,450,081-9,129,459 Inception: 31 January 2005 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. Performance & Strategy Summary International equities had another moderately negative quarter of returns. Our portfolio performed substantially better than the benchmark and delivered a positive absolute return in the quarter. The portfolio remains ahead of benchmark over most other time periods. The United Kingdom was the best performing international region in the quarter and delivered positive absolute returns. Pacific ex Japan also delivered positive returns. Europe ex UK and Japan were the weakest regions and delivered negative returns in the quarter. Developed international markets substantially outperformed the emerging markets in the quarter. Our relative performance was driven by good stock selection in Europe and in the Energy sector. This was somewhat offset by weak stock selection in the Consumer Discretionary sector. We made very few changes to the portfolio in the quarter. We sold out of our holding in Danish jewellery manufacturer and retailer Pandora A/S following a disappointing update on their Asia business. There were no new positions added to the portfolio in the quarter. The Energy sector was far and away the strongest sector in the quarter delivering good positive absolute returns. Financials and the Telecommunication Services sectors were the weakest sectors in the quarter. Market Returns - In USD Terms (%) - Q United Kingdom Pacific Ex Japan EAFE Japan Europe Ex U.K. Emerging Markets MSCI EAFE Region (Net) Health Care Materials Utilities Consumer Staples Information Technology Real Estate Industrials Consumer Discretionary Telecom. Services MSCI EAFE Sector (Net) Energy Financials Source: MSCI, Barings Source: MSCI, Barings 1

3 Performance - Q Total Relative Contributions (%) 2.8 Key Contributions - Geographic 0.9 Key Contributions - Economic Sector Continental Europe United Kingdom Emerging Markets Japan Pacific Ex Japan Energy Financials Health Care Industrials Consumer Discretionary Allocation Selection Total Allocation Selection Total Continental Europe 0.2 UW Energy 0.2 OW United Kingdom 0.3 OW Financials 0.2 UW Cash 0.0 OW Health Care 0.1 OW Middle East -0.1 UW Industrials 0.1 UW Emerging Markets -1.0 OW Consumer Staples 0.1 OW Japan 0.0 UW Information Technology 0.1 OW Pacific Ex Japan -0.2 UW Cash 0.0 OW Total Materials 0.0 OW Real Estate 0.0 UW Telecom Services 0.1 UW Utilities -0.1 UW Consumer Discretionary 0.0 OW 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 TGS-Nopec Geophysical Company ASA 0.8 Norway Energy Wirecard AG 0.4 Germany Information Technology Johnson Matthey 0.4 United Kingdom Materials CNOOC 0.3 China Energy Shire 0.2 United Kingdom Health Care Negative Contribution Country Sector Pandora -0.4 Denmark Consumer Discretionary Samsonite International -0.4 Hong Kong Consumer Discretionary Yamaha Motor Co., Ltd Japan Consumer Discretionary Nintendo -0.3 Japan Information Technology Mitsubishi Ufj Financial Group, Inc Japan Financials Source: Barings, Gross of Fees 2

4 Investment Strategy Major Portfolio Positions - 30 June 2018 (%) Geographic Bmk End Active Start Wgt Acct End Wgt Wgt Relative Weight Active Start Wgt Economic Sector Acct End Bmk End Wgt Wgt Relative Weight Portfolio Benchmark 30 Jun 31 Mar Portfolio Benchmark 30 Jun 31 Mar Emerging Markets Information Technology United Kingdom Cash Cash Consumer Staples Middle East Health Care Japan Energy Pacific Ex Japan Consumer Discretionary Continental Europe Materials Total Telecom Services Real Estate Utilities Financials Industrials Total Region & Sector definitions are based on index classifications. Economic exposure may differ. Largest Positive & Negative Positions - 30 June 2018 Positive Active Position (%) Country Sector Royal Ahold Delhaize N.V. 3.5 Netherlands Consumer Staples Unilever 2.9 United Kingdom Consumer Staples Johnson Matthey 2.8 United Kingdom Materials Deutsche Boerse 2.6 Germany Financials Fresenius SE 2.6 Germany Health Care Sony 2.5 Japan Consumer Discretionary Bridgestone 2.3 Japan Consumer Discretionary TGS-Nopec Geophysical Company ASA 2.3 Norway Energy Naspers 2.2 South Africa Consumer Discretionary CRH Plc 2.2 Ireland Materials Negative Active Position (%) Country Sector Nestle -1.7 Switzerland Consumer Staples HSBC -1.3 United Kingdom Financials Novartis -1.2 Switzerland Health Care Roche Holding -1.1 Switzerland Health Care BP -1.1 United Kingdom Energy British American Tobacco -0.8 United Kingdom Consumer Staples Siemens -0.7 Germany Industrials GlaxoSmithKline -0.7 United Kingdom Health Care Commonwealth Bank of Australia -0.7 Australia Financials LVMH Moet Hennessy Louis Vuitton -0.6 France Consumer Discretionary Source: Barings 3

5 Investment Strategy & Outlook It has been a weak half year performance for international equities. Our portfolio was up in absolute and relative terms for the quarter and is nicely ahead of the benchmark for the year to date and over most other time periods. Regional market performance was mixed in the quarter. The United Kingdom was the best performing international region and delivered positive absolute returns. Pacific ex Japan also delivered positive returns. Europe ex UK and Japan were the weakest regions and delivered negative returns. Developed international markets substantially outperformed the emerging markets in the quarter. The Energy sector was far and away the strongest sector in the quarter delivering good positive absolute returns. Financials and the Telecommunication Services sectors were the weakest sectors in the quarter. Moderate global economic growth has continued into 2018, supported by falling unemployment and good levels of business and consumer confidence. Most global economies are seeing growth in GDP and industrial production, whilst business and consumer confidence indexes remain at a high level. We expect this moderate global economic growth to continue through the remainder of Leading indicators such as the JP Morgan Global Manufacturing Purchasing Managers Index have been declining but continue to signal economic growth. Unemployment is also very low in many economies, particularly in the U.S. (3.8%), and we are beginning to see corresponding signs of higher inflation in some areas; however we currently have no reason to believe that this is a widespread phenomenon. There are risks that have the potential to undermine global economic growth in The spectre of tariffs and trade wars, and the continued withdrawal of liquidity by the US Federal reserve, has created headwinds for certain segments of the market. As the U.S. Federal Reserve has raised interest rates, this has begun to put a strain on some Emerging Markets economies that may find it more difficult to raise debt financing as a result of higher U.S. rates. The potential for an escalation of ongoing trade tensions into a full-fledged trade war does continue to cast a shadow over global equity markets. Fortunately, the companies in which we invest have been largely isolated from the negative impact of these trade tensions. Regardless of trade tensions we believe the growth outlook for the Technology sector remains positive, particularly in relation to the Software & Services and e-commerce sub-sectors. However, the strong performance in 2017 for Technology stocks has meant that they are trading at the higher end of their historic valuation ranges and are showing less upside to our internally estimated price targets than they used to. In the event that valuations here moderate, we would be looking to add further to Technology companies for the portfolio. Meanwhile, we are continuing to see and pursue quality investment opportunities in other sectors that are reasonably priced and offer attractive growth prospects. For instance, high quality, defensive growth sectors are beginning to look more attractively valued than they have for years. We hope this may lead to us identifying some new investments for the portfolio. Also, a number of high quality industrial companies have seen a weak share price performance this year. We are not sure whether this is related to trade fears, or fears of a turn in the economic cycle. What we do know is that on our 5 year investment time horizon these fears seem to be discounted in the current share prices of these companies, and they are beginning to look like good investments with attractive levels of upside. We sold our holding in Danish jewellery retailer Pandora A/S in the quarter. This did not prove to be a good investment for the portfolio. Our decision was driven by a decline in our conviction of the growth outlook for the business. We had been patient with this investment despite lacklustre developed market growth in recent years. This was because we had high hopes for the growth potential of their business model in Asia, and in particular in China. However, in the quarter they produced lower than expected profits, and moreover, they revealed that their Chinese business was being undermined by high volumes of grey imports of their product. The imports were a direct result of Pandora's global pricing structure where their goods in Australia and Europe were being priced considerably lower than in China. In our view, adjusting that pricing structure is likely to impact margins or growth or both, and will likely be difficult to implement. Finally, as we have said in the past, this is a time of rapid innovation, with the emergence of large numbers of enabling technologies such as cloud computing, smartphones, electric and autonomous vehicles and e-commerce. Whilst these new technologies are creating investment opportunities for the providers of these new technologies, it is also allowing entire industries to redesign the way in which their goods and services are delivered. We expect this trend to continue and we are looking for those companies that can successfully harness these technologies to drive earnings growth and capture market share. 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 (July 2018) Paul Thompson Julian Swayne Richard Kent Chairman, Non-Executive Chief Executive Officer Executive Director Director Tom Finke Non-Executive Director Elizabeth Ward Non-Executive Director Account Management Team Investment Managers David Bertocchi / Jon Greenhill Client Service Team BostonCSMTeam@Barings.com +44 (0) /1271 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:

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8 Miami GESE Performance City of Miami General Employees & Sanitation Employees Retirement Trust As of June 30, Inception Date: June 25, For information purposes only and not a recommendation to buy or sell securities shown. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. An investment entails a risk of loss. For investment professionals only 1

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