Denning Pryce Global Income Fund May 2017

Transcription

1 ABN AFSL Tel: Denning Pryce Global Income Fund May 207 Market Overview Volatility conditions remain benign. Volatility (as reflected by the VIX) remains at multi-year lows suggesting there is limited investor concern (and definitely no areas of panic) priced into the market. We make no specific forecast about the future direction of the overall market. But with increased cash holdings at fund managers and market analysts predicting a pullback in markets, it may be that the path of least resistance in the short term is up. If funds are under-invested, a market move up can squeeze investors into participating at higher levels. With global markets trading higher and volatility continuing to sit at the low end of long-term averages, we can discount much of the dominant negative media narrative - of stretched company valuations and a volatile US political backdrop as the anti-trump rhetoric continues. A recent study found that 80 of US TV and print articles were negative on Trump. Markets stumbled for a day - and the S&P500 fell.8 - following headlines suggesting a Trump impeachment. Yet the S&P500, DOW and the NASDAQ all touched record highs recently. Markets focus on opportunity notably the economic backdrop - and ignore the noise. Share markets have been led by the performance of Google (6), Apple (6) and Amazon (7). Their collective market cap sits at $.97 trillion following better than expected earnings. Meantime, the traditional media names were among the worst performers: Twenty First Century Fox (FOXA) fell.2, Walt Disney (DIS) fell 6.63, CBS down 8.9 and Viacom (VIS) down 8.3. Europe was mostly firm. CAC40, DAX and FTSE each put in a positive month, with the UK market finishing higher by 4.4 as offshore earners, in particular healthcare stocks, traded well. Astra Zeneca was up 3 and GlaxoSmithKline (GSK) up 0. Against the trend, global banks were weak. Wells Fargo (WFC), JP Morgan (JPM) and Bank of America all finished lower by around 4. Citi (C) traded against the trend, up by 3. European bank names also came under pressure: BNP-Paribas (BNP) and Deutsche Bank (DBK) traded lower. In Australia the S&P/ASX200 was down by 3.37 as the government announced a levy on the banks and the big four bank shares fell around 0. Various institutions have attempted to slow housing price growth with rhetoric and proposed regulation, weakening sentiment. Oil fell 2 in May despite OPEC agreeing to continue the reduced supply agreement. Page

2 Table : Fund Performance Summary (Full unit performance detail and methodology is set out at Table 3) As at 3 May 207 Month FYTD 3 Years p.a. 5Years p.a. Since Inception p.a. DP Global Income Fund (Institutional Class unit) Fund benchmark Inception date is 25th July 20. Past performance is not indicative of future performance MSCI World Accumulation Index in Local Currency / 50 Bloomberg AusBond Bank Bill Index Fund Commentary As a result of low option pricing we have continued to add protection across the portfolio as we head into the end of the financial year. The portfolio currently holds 70 equity and options positions (across various international companies and indices). We have allowed several positions to be called away after a strong performance in recent weeks; companies leaving the portfolio included 3M (MMM), DR Horton (DHI) the US home builder, Cerner (CERN) and US Defence Company Raytheon (RTN). The funds are now directed into new opportunities. Technology again led the market higher with Amazon and Google both trading well. Other positions in the portfolio benefited from the positive sentiment in the sector: a long call position in Qualcomm (QCOM), a buy-write position in Microsoft (MSFT) and a protected stock position in Flextronics (FLEX). Flextronics continues to exhibit positive momentum and is now up 46 for the financial year to date, with revenue diversified across sub-sectors including smartphones, computer products, medical applications, and equipment for wireless infrastructure. Healthcare names put in a mixed performance in May. Pfizer (PFE) has struggled in a competitive drug market and the stock fell 3.7. Its solid dividend of 4 remains attractive and with volatility trading at the bottom of the 2 year average, we now hold the position as a protected equity position. This structure combines a long put and long equity position - ensuring that we hold a limited downside exposure should the stock fall. By way of contrast, our holding in Swiss drug maker Novartis (NOVN) returned 3.6. Stryker (SYK) the surgical and medical products developer was up by 4.8. We currently hold the position partially written (buy-write strategy) and will look to roll our existing call options into longer-dated expiries as we approach financial year-end. UK listed Astra Zeneca (AZN) was the standout healthcare stock, trading up 3 in May. Although AZN had good news on the success of a breast cancer drug, it was a currency tailwind from a weak pound which helped to lift profits. Banks remained the underperformers in the portfolio. Citi Group (C) aside, the other majors have struggled. With the sector largely unchanged for 207, BNP-Paribas (BNP), JP Morgan, Morgan Stanley, State Street (STT) and Wells Fargo (WFC) all finished lower in May. We hold protection over both WFC and Citi Group and hold our exposure to Morgan Stanley in the form of a long call position. We have also written calls over both JP Morgan and STT. We are comfortable with the mix of these positions, which has helped to minimise losses and remains our preferred way to hold exposure to the sector. At a macro level, regulatory reforms, rate rises and possible Page 2

3 tax cuts in the US do offer significant upside to this sector. We will use the options market to adjust the risk exposure of the sector where and when we see opportunity. Nestle (NESN), the major Swiss packaged food company, put in a good month. Having been largely flat since August 206, the stock had a good run finishing higher by 8. There was no major news in the name, but positive momentum developed in certain names that are paying a reasonable dividend. Vodafone had a positive run in May. Many of the global telecom stocks have been on the outer in recent months as competition changes the existing business model. Fixed line is out of favour and mobile is ultracompetitive. As such, these businesses are evolving and looking to streamline, to provide content in order to grow, as witnessed by AT&T s (T) bid for Time Warner (TWX). Our long call position in Vodafone worked well as the stock rallied from the two pounds price level to finish the month at 2.3, a move of 6. We opted to close out our call position for a profit. Volatility, hence premiums, remain at very low levels. There has been no new discernible low since the sell-down in volatility in April. Regardless of whether volatility has now bottomed or may fall further, we are happy to continue adding more optionality to the portfolio at these levels. Firstly, the low volatility environment is also an opportunity to position for a future move, in either direction. Secondly, for a low dollar amount, we are able to protect elements of our portfolio, for example our protected equity positions in PFE, FLEX and Wells Fargo. We will also continue to add upside exposure to both index and single stock names. We currently hold upside calls in Qualcomm, Schlumberger (SLB), DAX, EuroStoxx, FTSE00 and the S&P500. Table 2: Leading exposures Fund Top Ten by Exposure Page 3

4 Table 3 - Investor Information 3 May 207 Institutional Class Wholesale Class Retail Class Total Net Asset Value 2 $49,686, $3,029,43.56 $43,3.68 $52,759,349.6 Net Returns for the month 3 & APIR Code DPR0002AU ZUR0592AU ZUR059AU NAV Price 5 $.0959 $.0695 $.0630 Redemption Price 6 $.0937 $.0674 $.0609 Distribution cents per unit n/a n/a n/a Notes:. Performance since inception is from 25 th July 20, and is measured to each full month end. Past Performance is not indicative of future performance. 2. The value of the Fund s assets less the liabilities of the Fund net of fees, costs and taxes. The Class NAV is the amount of the Fund NAV referable to the respective class. 3. Net returns are calculated using net asset value to net asset value, after fees and expenses and assuming reinvestment of income. 4. The buy/sell spread (currently / -0.20) is an estimate of the costs of buying or selling assets associated with an investment in, or withdrawal from, the Fund. This is not a fee paid to us and is reflected in the respective class unit price. 5. The respective Class NAV price is determined by calculating the NAV referable to the class divided by the number of units on issue in the relevant class. 6. The respective class redemption price is calculated by decreasing the relevant Class NAV price by the sell spread (currently 0.20). There are no related party status declarations to be made at this time. Unless otherwise stated, the source of all graphs and tables contained in this report is Denning Pryce. In addition, please note that the following information remains as set out in the PDS for the Fund dated 20 th May 205. Key service providers to the Fund Key service providers to the Fund The Fund s strategy The team of individuals who play a key role in the operation of the Fund Additional Important Information Denning Pryce Pty Limited ACN AFSL (Denning Pryce) is the investment manager of the Denning Pryce Global Income Fund (ARSN ) (Fund). One Managed Investment Funds Limited (ABN ) (AFSL ) is the responsibility entity of the Fund (OMIFL). The information contained in this document was not prepared by OMIFL but was prepared by other parties. While OMIFL has no reason to believe that the information is inaccurate, the truth or accuracy of the information contained therein cannot be warranted or guaranteed. Anyone reading this report must obtain and rely upon their own independent advice and inquiries. Investors should consider the relevant Product Disclosure Statement (PDS) issued by OMIFL before making any decision regarding the Fund. The PDS contains important information about investing in the Fund and it is important investors obtain and read a copy of the PDS before making a decision about whether to acquire, continue to hold or dispose of units in the Fund. You should also consult a licensed financial adviser before making an investment decision in relation to the Fund. A copy of the current PDS and continuous disclosures may be obtained from or Denning Pryce believes that the information contained in this document is accurate when issued. Denning Pryce does not warrant that such information or advice is accurate, reliable, complete or up-to-date, and to the fullest extent permitted by law, disclaims all liability of Denning Pryce and its associates. This document should be regarded as general information only rather than advice. In preparing this document, Denning Pryce did not take into account the investment objectives, financial situation and particular needs of any individual person. The information contained in this document must not be copied or disclosed in whole or in part without the prior written consent of Denning Pryce, and Denning Pryce accept no liability whatsoever for the actions of third parties in this respect. It is presented for informational purposes only and is not to be construed as a solicitation or an offer or recommendation to buy or sell any securities. Any opinions expressed in this Page 4

5 document constitute Denning Pryce s judgement at the time of issue and may be subject to change without notice. Denning Pryce is not obliged to update the information. The information must not be used by recipients as a substitute for the exercise of their own judgment and investigation. Neither Denning Pryce nor any of their directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or part of, or any omission, inadequacy or inaccuracy in, this document. OMIFL and Denning Pryce do not guarantee the performance of the Fund or the repayment of any investor s capital. To the extent permitted by law, neither OMIFL nor Denning Pryce, including their directors, senior executives, employees, consultants, advisers, officers or authorized representatives, are liable for any loss or damage arising as a result of reliance placed on the contents of this document. Denning Pryce only provides services to wholesale clients, as defined in section 76G of the Corporations Act. Past performance is not indicative of future performance. Information in this document is current as at 3 May 207. Third party data is owned by the applicable third party identified and is provided for your internal use only. Such data may not be reproduced or re-disseminated and may not be used to create any financial instruments, products or indices. Such data is provided without any warranties of any kind. Neither the third party data owner nor any other party involved in the publication of this document can be held liable for any error. Page 5