Denning Pryce Global Income Fund August 2017

Transcription

1 ABN AFSL Tel: Denning Pryce Global Income Fund August 207 Market Overview Markets continue to react to North Korea and American tensions with volatility pricing following its recent path of sharp increases and subsequent declines. The most recent launch of a North Korean missile, which flew over Japan, acted as the catalyst, resulting in a quick sell off in markets mid-month. Volatility briefly traded at levels last seen in November 206, the time of the US presidential elections, but by month end had closed slightly above July s low. Sector volatility remains varied across the market place. Premiums in the materials and financial space have fallen in recent weeks as stocks have remained in a smaller trading range and the extreme moves have slowed. With that said premiums in both sectors remain at attractive levels for buy-writing and provide the opportunities to take advantage of short term moves in the two sectors. An increase in volatility in the technology sector has come as the FANG stocks have seen some recent profit taking. Both Alphabet (GOOGL) and Amazon (AMZN) currently trade well off their recent highs, Volatility has remained very strong in the consumer discretionary sector as the Amazon effect continues to ripple around the globe. Amazon s deep pockets have allowed the company to enter virtually any industry and offer cheaper and readily available product. This was highlighted by Amazon s recent purchase of Whole Foods for $.7bn USD which resulted in competitor stocks taking large hits to their share price. The implication: Amazon will squeeze rival company profits. Despite geopolitical events and some profit taking markets in fact finished the month largely unchanged. The exceptions were the US technology index, the NASDAQ (.84), which was led by strong performances from Apple (AAPL), and the Bio-technology giants including Amgen and Biogen. Japan s Nikkei continued to drift lower, finishing down.4. Australian markets put in their third consecutive flat month as momentum stalled and sector rotation continued. Materials stocks all reported well and have traded higher led by moves in Newcrest (NCM) and BHP Billiton (BHP). Gains in this sector offset some of the losses incurred by Australian bank names. CBA was the clear underperformer on the news that their ATMs were used to launder money. The stock fell 9.5 during the month as an investigation continues. Telstra was the other big loser, reporting numbers that were lower than analyst expectations, which, coupled with the announcement that they were cutting their dividend for the first time in 20 years, resulted in the stock falling 0. Page

2 Table : Fund Performance Summary (Full unit performance detail and methodology is set out at Table ) As at August 207 Month 6 2 Years p.a. 5 Years p.a. Since Inception p.a. DP Global Income Fund (Institutional 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 The portfolio currently holds 70 equity and options positions (across various international companies and indices). Northern hemisphere markets continue to digest the recent corporate results with company reporting finishing mid-month. Markets largely traded sideways, with European stocks proving to be the biggest lag on the portfolio. The region has struggled for momentum in recent weeks, despite a reasonably healthy earnings season. The fund has continued to add new positions post the reporting season whilst avoiding unwanted volatility from high frequency/algorithmic trading around news announcements. High frequency electronic trading utilises speed and high turnover to rapidly move stock prices basing the process on turnover and news flow, and is an element of the new market which has resulted in sharp moves in underlying stocks. Fund risk allocation With the overwhelming majority of the portfolio trading very well in what was a flat market it was disappointing to have a small handful of names underperform during the month. Prudential (PRU), ZimmerBionet, (ZBH) Siemens (SIE), Exxon (XOM) and Schlumberger (SLB) suffered post their reporting, with momentum turning negative. ZBH, PRU and SIE have all been strong performers for the fund in recent months. We cut SLB and Exxon from the portfolio and currently hold puts protecting our positions in Siemens and Prudential. PRU was the hardest hit as Cyclone Harvey impacted stock prices in the Insurance sector (despite the fact that PRU has very little exposure to the actual event). Siemens has had a tough couple of months, its performance closely related to a strengthening European currency. Germany s DAX has suffered trading 7 lower since its June 20 th highs. As the major industrial powerhouse and exporter of Europe it is expected that there will be some profit shrinkage on the back of the strengthening Euro. Healthcare names in the portfolio had a solid month on the back of another set of strong corporate reporting numbers, Pfizer (PFE) was up 2.29, but the standout performer was Thermo Fisher (TMO) which traded higher by 6.6. TMO, the manufacturer of scientific instruments, has been a part of the portfolio for the past 2 ½ years increasing by over 50. At different points we have added written calls taking advantage of higher reporting premiums but have maintained a consistent exposure to the name. The majority of the financial names in the portfolio finished flat. Wells Fargo (WFC) was the exception in the banking names falling 5 during August. A long put protected our fund from the bulk of the move. We have written calls over several of the holdings, including JP Morgan (JPM), State Street (STT) and Bank of America (BAC), and this improved our overall performance relative to market. The sector has ebbed and flowed during 207 as it consolidates the gains made following the November Trump rally. The potential for further interest Page 2

3 rate increases, a cut to the corporate tax rate, and, what remains a resilient domestic US economy, are catalysts for further upside in the sector. Technology stocks held up well during the month with Apple (AAPL) being the big mover, trading higher by 0 as news of the launch of the iphone 8 spurred the stock on to new highs. A long call spread in the name worked well for the fund as the stock traded up through the $60 level. Visa (V) was another good performer finishing higher by 4 on the back of some solid earnings. Industrial names Union Pacific Corp. (UNP) and United Parcel Service (UPS) both trading finished up higher to 2. and.7 respectively. Both names have been held in the portfolio for a reasonable length of time and have traded well for the fund. Both offer good sector dispersion to the portfolio and have been good generators of premium using a sold call/over-writing strategy. With single stock premiums continuing to fluctuate near their recent lows we maintain several volatility positions that look to benefit from significant moves in the underlying stock. Included are Kroger (KR), the US British Petroleum (BP/), Siemens (SIE), Newcrest Mining (NCM) and US investment bank, Morgan Stanley (MS). Table 2: Leading exposures Fund Top Ten by Exposure Page

4 Table : Investor Information August 207 Institutional Wholesale Retail Total Net Asset Value 2 $48,82,09.50 $,05, $42,92.90 $5,440,08.87 Net Returns for the month & APIR Code DPR0002AU ZUR0592AU ZUR059AU NAV Price 5 $.0782 $.054 $.0442 Redemption Price 6 $.0760 $.049 $.042 Distribution cents per unit $ $ $ 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 NAV is the amount of the Fund NAV referable to the respective class.. 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 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 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 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 Page 4

5 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 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 August 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