River and Mercantile September 2012 Global Opportunities Fund Quarterly Report

Transcription

1 Global Opportunities UK Fund Equity I Quarterly Fund I Monthly Report Report September February

2 River and Mercantile September 2012 Global Opportunities Fund Quarterly Report Fund Aim The investment objective of the Fund is to achieve capital growth through investing in a concentrated portfolio of global equities of companies which the Manager believes represent the most attractive opportunities to achieve above average returns. The Fund will not be restricted by reference to a benchmark, sector constraints or company size. Portfolio Summary Risk Analysis Summary Strategy AUM 804.5m Portfolio Volatility % Strategy Capacity 2bn Benchmark Volatility % Number of stocks 54 Portfolio Beta 0.93 Largest Holding Google 4.1 % Tracking Error 3.59 % Active Money % Performance to 30 September 2012 Retail A Class Shares Fund¹ Index * Difference Month 1.94% 1.51% 0.43% Quarter 4.99% 3.83% 1.16% Year 14.47% 16.66% -2.19% Since Launch (pa) % 6.62% -2.47% Institutional Z Class Shares Fund² Index* Difference Month 2.07% 1.51% 0.56% Quarter 5.44% 3.83% 1.61% Year 16.44% 16.66% -0.22% Since Launch (pa) % 6.62% -0.65% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Month 3 Months YTD 1 Year 3 Years (pa) 5 Years (pa) Since Launch (pa) 3 R&M Global Opportunities Fund A Shares R&M Global Opportunities Fund Z Shares FTSE All World Index Source: River and Mercantile Asset Management LLP *Index : FTSE All World Index, Total Return, Net Dividends Reinvested (GBP) ¹Performance calculated on a mid to mid basis at close of business, net of annual management charge ²Performance calculated on a mid to mid basis at close of business, gross of annual management charge 3 Inception date 8 October

3 Investment Commentary Market Background In contrast to the corresponding period last year, during which global markets fell sharply in response to the European sovereign debt crisis, the third quarter of 2012 saw equity returns lifted by a series of unconventional measures from the world s major central banks. Over the quarter, the FTSE All-World Index returned 3.8% (measured in GBP), reversing the 3.8% decline seen in the previous quarter. Despite some degree of volatility, the Index has returned 16.7% (in GBP) over the last 12 months. Over the summer months, asset prices were supported through renewed Quantitative Easing (Federal Reserve, Bank of Japan and Bank of England) or Outright Monetary Transactions (in the case of the European Central Bank). The move by the ECB to allow purchases of the sovereign debt of European nations (despite opposition from the Bundesbank) was perhaps most instrumental in fuelling equity markets (as well as peripheral European bond markets) as it quelled mounting fears of an imminent Euro breakup which had caused apparent safe haven assets to trade at abnormally high valuations. As we have noted in prior quarterly reports, the very significant debt burden of some of the world s major economies is forcing central banks to continue experimenting with unconventional policy. One illustration of this is the extent to which various central banks have expanded their balance sheets since the financial crisis, shown below. Central Banks Assets as % of GDP Source: Bloomberg, Federal Reserve,SNB,BoE,CEIC,CLSA The result of these latest policy manoeuvres was that Europe (+6.9%) outperformed other developed markets such as the US (+2.8%). Japan was the notable laggard (-2.1%) as a proposal to levy a tax on consumption weighed on the poor outlook for economic growth. In September, relations between Japan and China became strained over the Senkaku islands (an uninhabited group of islands near the Chinese mainland) causing some Japanese factories and businesses in China to shut temporarily. Within Europe, Germany (+10.9%) outperformed the UK (+3.1%) and France (+3.5%), and, perhaps more unexpectedly given the announcement by the ECB, Spain (+7.1%) and Italy (+4.3%). Amongst emerging markets, China continued to lag (-7.9%) as concerns the country would suffer a hard landing weighed on sentiment. India (+10.5%) rallied following a spurt of investor-friendly reforms by the administration. Thailand (+10.2%) and Singapore (+6.5%) were also strong. The renewal of quantitative easing has reminded investors that low interest rates are here for the foreseeable future. As investors struggle to harvest cash flows from the meagre RETURNS 2

4 returns on offer from bonds, some are looking to equities to provide them with the cash flows they are looking for. The type of equity which appeals to such an investor is a company with lower share price volatility than the market and a reasonable, stable but growing dividend yield. There is some evidence that equities with stable, growing dividends are less volatile than other equities. Given this move, it was not surprising to see dividend-paying equities in Asia in sectors such as real estate and telecommunications performing well during the period, in addition to stocks quoted in Europe. Performance The fund outperformed the index comfortably over the quarter, with a return of 5.4% compared to the Index return of 3.8%. Performance was aided by good stock selection, with a broad variety of stocks featuring in the top contributors to returns. Google performed well over the quarter and is a big beneficiary of our Digital Ubiquity theme as it has become a platform for accessing and analysing the world s online information, and very successfully, monetises the results. Singapore landlord CapitaCommercial Trust (for the second consecutive quarter), Ansell, an Australian healthcare products company, and New Zealandbased Fletcher Building also made healthy positive contributions to the portfolio s performance. Some of our European holdings in Germany and France also made good progress, notably Ingenico, Tom Tailor and Deutsche Wohnen. Detractors from performance included Intel, which traded down on concerns about shorter term demand trends, and Japanese holdings Toshiba and Canon. Toshiba was sold as the anticipated recovery in nuclear power generation has recently deteriorated from already lowered and pessimistic expectations. Canon has seen weakness in its laser beam printers business which is likely to impact this year s results. Activity We purchased Philippine Long Distance Telephone Company (PLDT), building on our exposure to the Philippines, a development that we commented on last quarter. PLDT has a strong position, in a consolidated market. We also bought Italian-listed oil major ENI, where we expect the valuation to improve as the business benefits from better production trends, and which offers a strong dividend yield. The investment was funded from our position in Royal Dutch Shell. Syngenta was added to the portfolio, as it continues to benefit from agricultural demand in order to increase crop yields, whilst the stock traded at a substantial discount to peers. Tyco International was sold as it had achieved our estimated value. As noted above, both Toshiba and Canon were sold as, in each case, the investment thesis has deteriorated. Outlook Despite the respite given to equity markets by the actions of the world s major central banks, momentum in the global economy is sluggish, as the debt overhang continues to act as a huge brake on economic recovery. The policy move by the ECB has lessened considerably the fears of an imminent break-up of the Euro; however the policy of austerity remains firmly in place, causing declines in aggregate demand in most European nations. The decline in aggregate demand from peripheral Europe, as a percentage of global GDP, is greater than the decline in demand seen by the US in late In contrast to 2008, however, growth is certainly less robust in major developing nations such as China, India and Brazil, though there are a few small notable exceptions such as Thailand and the Philippines. Whilst the US economy is in a better position than Europe and Japan, the resolution of the threat of the so-called fiscal cliff remains vulnerable to political brinksmanship, after the Presidential election. 3

5 The global backdrop for economic growth remains weak and geopolitical risk remains high. We continue to use our thematic investment approach to identify potential investments, and apply our valuation discipline to help determine the most appropriate ways to take advantage of these themes. Alex Stanić & Alex O Reilly Portfolio Managers 4

6 Fund Facts Launch date 8 October 2009 Fund manager: Alex Stanić IMA sector: Global Growth Benchmark: FTSE All World Tracking error range: N/A Product capacity: 2 bn (pooled & segregated) XD dates: 1 April & 1 October Dividend/Accumulation payment date: 31 May and 30 Nov Share class: A B Z Launch price (shares): p p p Share classification: Retail Asset Manager Institutional Type of shares: Income Accumulation Accumulation Fund charges: Annual 1.75% 1.00% 0.00%* Initial (up to) 5.25% 5.25% 5.25% *AMC charged outside the Fund Minimum investment Initial 1, million 5 million Subsequent ,000 50,000 Sedol B3S4FZ4 B3QHX28 B3QJ1B9 ISIN GB00B3S4FZ41 GB00B3QHX281 GB00B3QJ1B92 Bloomberg RMGLOPA RMGLOPB RMGLOPZ Important Disclosures: The information in this document has been prepared and issued by River and Mercantile Asset Management LLP (R&M) and is directed at professional clients only. Retail clients should not rely on the information provided for this investment product. Retail clients requiring any information should seek the advice/assistance of a Financial Advisor. R&M is authorised and regulated by the Financial Services Authority in the United Kingdom. The information contained in this document is strictly confidential and may not be reproduced or further distributed. The value of investments and any income generated may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. Past performance is not necessarily a guide to future performance. Changes in exchange rates may have an adverse effect on the value, price or income of investments. Please refer to the River and Mercantile ICVC principal prospectus for further details of the financial commitments and risks involved in connection with an investment in this Fund. The information and opinions contained in this document are subject to updating and verification and may be subject to amendment. The information and opinions do not purport to be full or complete. No representation, warranty, or undertaking, express or limited, is given as to the accuracy or completeness of the information or opinions contained in this document by R&M, its partners or employees. No liability is accepted by such persons for the accuracy or completeness of any such information or opinions. As such, no reliance may be placed for any purpose on the information and opinions contained in this document. The Industry Classification Benchmark is a joint product of FTSE International Limited and Dow Jones Indexes, a licensed trademark of CME Group Index Services LLC ( Dow Jones Indexes ), and has been licensed for use. FTSE is a trade and service mark of London Stock Exchange and The Financial Times Limited. Dow Jones and Dow Jones Indexes are service marks of Dow Jones Trademark Holdings, LLC. FTSE and Dow Jones Indexes and their respective licensors and affiliates do not accept any liability to any person for any loss or damage arising out of any error or omission in the ICB. River and Mercantile Asset Management LLP 30 Coleman Street London EC2R 5AL Telephone: +44 (0) Facsimile: +44 (0) enquiries@riverandmercantile.com 10