UBS International Share Fund. Quarterly investment report to 31-Mar-18

Transcription

1 UBS International Share Fund Quarterly investment report to 31-Mar-18

2 Performance Comments Before fees and expenses, the portfolio rose by 0.98% over the quarter, outperforming its benchmark. The portfolio was flat relative to the benchmark in March. Strong stock selection in Energy and Health Care was offset by poor stock selection in Consumer Staples, Financials and Industrials. Additionally, our underweight in Utilities also detracted on performance. % Return (Gross) Fund 1 Benchmark* Difference 3 months years years (0.61) 5 years (0.59) Calendar Year to Date Since inception (11/92) (0.12) 1 Performance figures are gross of ongoing fees and expenses. *MSCI World Equity Accumulation Index ex Australia (in $A) After fees and expenses, the portfolio rose by 0.73% over the quarter, underperforming its benchmark. % Return (Net) Fund 2 Benchmark* Difference 3 months (0.06) 1 years (0.36) 3 years (1.67) 5 years (1.75) Calendar Year to Date (0.06) Since inception (11/92) (1.06) 2 Performance figures are net of ongoing fees and expenses. *MSCI World Equity Accumulation Index ex Australia (in $A) Performance can be volatile and future returns can vary from past returns. The benchmark does not incur these costs. The performance figures quoted are historical, calculated using end of month redemption prices and do not allow for the effects of income tax or inflation. The calculations also assume that all income distributions have been reinvested. Performance has been prepared in accordance with 2016 GIPS standards. The main contributor to performance in March was our position in the biotech company Shire. Shares rose in response to evidence of takeover interest from Takeda, the Japanese pharmaceuticals Group. Our overweight position in the exploration and production company Hess Corp was also one of the main contributors to performance in March. Shares rose supported by the continued increase in the crude oil price during the month. Additionally, the company announced a USD 1bn share repurchase program by the end of Being overweight the global consumer goods giant Unilever was also one of the main contributors to performance over the month. Shares rose after the company announced its decision to move to a single legal domicile in the Netherlands, in a move that is expected to further protect the company from unwelcome takeover bids. Additionally, the company will reorganize into three divisions with more autonomy which was well received by investors. Our position in the defense provider Thales also contributed to performance during the month. Shares rose after the company published solid yearly results and announced that 2018 will be a promising year for the company as it will benefit from positive trends in the majority of its markets. Lastly, our overweight position in the US semiconductor company Micron Technology also contributed to performance in March. Shares rose on the back of strong quarterly earnings results, with top line revenue beating estimates. The outlook for the industry is very positive as DRAM pricing seems likely to resume an upward trend in Q Furthermore, the company is expected to announce a dividend initiation and a share buyback program later in the year, and investors also expect a continued margin expansion in the NAND flash memory segment. Overall, all these factors had a positive impact on the share price. Conversely, the main detractor to performance over the month was the US bank Wells Fargo. The company was hit by the announcement of new sanctions for the scandal relating to the payouts received for misspelling auto insurance policies. Additionally, the US Department of Justice will extend its investigation on the bank to its wealth management division. Our position the tech giant Facebook also detracted to performance in March. Shares were impacted following misappropriation of user data by Cambridge Analytica. The firm was kicked off Facebook s platform and told to destroy the user data, which they did not comply with. Facebook announced that they would tighten its internal procedures to avoid incidents like this in future. Our position in the primary supplier of phosphors of OLED displays Universal Display detracted to performance. Its stock has significantly declined recently due to lower than UBS Asset Management 2

3 Performance Comments (continued) expected sales of the iphone X; a resulting inventory build of its phosphorescent materials at Samsung, the manufacturer of the iphone X display; adoption of ASC 606, which forces Universal Display to recognize revenue more conservatively in the past; and a rumour that Apple is succeeding in developing "micro-led" displays which could ultimately limit the market for OLED displays. Being overweight the food retailer Kroger proved detrimental to performance. Although the company published strong Q4 results, with revenue beating estimates, shares were impacted as the revenue guidance for 2018 came in lower than expected. Lastly, our position in the global health care service company Cigna was also one of the main detractors to performance. Shares were impacted after the company announced a USD67bn deal to acquire Express Scripts. Stock Contributors & Detractors (%) Company name Return Contribution Over / underweight Amazon OW Micron Technology OW Otsuka OW Erste Group Bank OW Mastercard OW Total of top 5 Contributors 1.29 Synchrony Financial (11.10) (0.18) OW British American Tobacco (11.86) (0.19) OW Universal Display (32.88) (0.20) OW Sage (14.03) (0.26) OW Wells Fargo (11.39) (0.30) OW Total of top 5 Detractors (1.13) Sector Attribution (%) Sector Contributors Contribution Over / underweight Materials 0.30 OW Energy 0.27 OW Utilities 0.17 UW Consumer Discretionary 0.11 OW Real Estate 0.08 UW Telecom Services 0.02 UW Sector Detractors Contribution Over / underweight Consumer Staples UW Industrials UW Financials OW Total UW Information Technology UW Health Care OW 3 UBS Asset Management

4 Country Attribution (%) Company name Contribution Over / underweight Japan 0.58 OW Austria 0.23 OW Canada 0.22 UW Switzerland 0.09 UW Hong Kong 0.08 OW Total of top 5 Contributors 1.20 Singapore (0.02) UW Finland (0.02) OW Norway (0.09) OW United Kingdom (0.12) OW United States (0.72) UW Total of top 5 Detractors (0.97) Portfolio Positioning Active Positions by Stock (%) Top 5 Overweights Top 5 Underweights Wells Fargo 2.04 Apple (2.23) Sanofi 1.94 Alphabet (1.64) TJX Cos 1.80 Exxon Mobil (0.82) MetLife 1.79 Royal Dutch Shell (0.68) Sony 1.78 Berkshire Hathaway (0.65) Active Positions by Sector (%) Overweights Underweights Financials 2.63 Information Technology (2.42) Energy 0.74 Utilities (0.97) Consumer Discretionary 0.41 Real Estate (0.67) Materials 0.18 Industrials (0.66) Health Care 0.13 Telecommunication Services (0.46) Consumer Staples (0.18) Active Positions by Country (%) Top 5 Overweights Top 5 Underweights United Kingdom 6.31 United States (4.08) Netherlands 2.71 Switzerland (2.97) Austria 1.54 Germany (2.63) Japan 1.27 Spain (1.23) Italy 1.16 Canada (1.05) UBS Asset Management 4

5 Market Review Following a volatile month for returns in February, global equities had a negative month of performance in March leaving the MSCI World Index down -2.2% in local currency terms. This period of negative performance and increased volatility was largely driven by investors' concerns over the increasing risk of a global trade war, triggered by the announcement of new sanctions imposed by the US government on imports from China. The other main driver of the negative return during the month was the selloff in Tech stocks during the months, especially Facebook, which was affected by the Cambridge Analytica scandal and Amazon, which was negatively impacted following rumours that Donald Trump intends to further regulate the company. Despite all this, fundamentals continue to be strong and we believe that the synchronised global growth continues to be well in place. After reaching a record high level in the previous month, the Earnings Revision ratio in the US was still pointing to robust growth in March. Additionally, global PMIs remain strong and continue to support the growth momentum. Unemployment continues to decrease globally and inflation is picking up. In local currency terms, returns were negative across almost all sectors, with Financials, Materials and IT being the main laggards. Conversely, Utilities, Real Estate and Energy, driven by the increase in the crude oil price, had a positive return. The portfolio is focused on bottom-up stock ideas with a long term fundamental value approach. We currently see value within the Financials, Health Care, and Energy sectors, which have been out of favour for several years, as well as the Consumer Discretionary sector. Conversely, we are underweight long duration, bond-proxy stocks and some areas within the IT sector which we believe are currently trading above fair value and. We continue to search for fundamentally mispriced securities, and remain ready to take advantage of any opportunities presented by price/value dislocations caused by short term sentiment. We believe the portfolio is well positioned to face any market environment, as risk remains dominated by a large number of diversified, idiosyncratic, stock-specific sources, driven by our fundamental analysis. Outlook & Strategy The global economy continues to enjoy an expansionary impulse that is broadbased by geography and by economic sector. A steady flow of constructive macroeconomic data across both consumer and manufacturing sides of developed economies gives us confidence that global recession risks are low in the coming year even if the pace of growth acceleration is moderating in the short-term. Against this backdrop, corporates are also delivering strong profits growth. At this stage, we see limited potential for an upside earnings surprise in the US as tax cuts are largely reflected. However, we expect the profits recovery to maintain its momentum in Europe, Japan and across Emerging Markets. After recent stock market falls, price to earnings per share multiples appear more attractive. While the strong pace of accelerating global growth is likely to slow over the coming months, we expect lead indicators to moderate to a level consistent with slightly lower but still healthy demand growth. We retain a positive view of global equities, which will be largely supported in the year ahead by strong corporate earnings growth. Moderately rising global inflation is more support than threat to global equity markets given the potential for higher earnings via higher revenue growth and margin expansion. 5 UBS Asset Management

6 UBS Asset Management (Australia) Ltd Chifley Tower Level 16 2 Chifley Square Sydney NSW 2000 Tel Fax UBS Asset Management (Australia) Ltd (ABN ) (AFS Licence No ) is a subsidiary of UBS Group AG. This material provides general information only and has been prepared by UBS Asset Management (Australia) Ltd without taking into account your objectives, financial situation or needs. No representation or warranty, either express or implied is provided in relation to the accuracy, completeness, or reliability of the information contained herein. The information in relation to model portfolios including performance figures may not reflect your actual portfolio as the implementation of recommended model trades and holdings is beyond the responsibility of UBS and may differ due to timing differences or other considerations by others. This material does not constitute an offer or recommendation to buy or sell any securities or financial products, or to conclude any legal act of any kind whatsoever. Any opinions or forecasts expressed in this material are subject to change without notice and may differ or be contrary to opinions or forecasts expressed by other business areas or divisions of UBS Group AG or its affiliates ("UBS") as a result of using different assumptions and criteria. UBS is under no obligation to update or keep current the information contained herein. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS. Neither UBS Group AG nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this material. Your investment does not represent deposits or other liabilities of UBS, and is subject to investment risk, including loss of capital invested. UBS Group AG The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.