October, 2020
The Fund underperformed the index during November on a total return local basis. At a sector level, the Fund is overweight in oil, gas storage & transportation, airports, diversified, rail, and toll roads; and is underweight in communications, transmission & distribution, water, and ports. Overall positive contributions to relative returns came from diversified, communications, airports, and ports; whilst oil, gas storage & transportation, toll roads, water, and transmission & distribution detracted. From an asset allocation perspective, positive contributions to relative returns came from communications, oil, gas storage & transportation, and ports; whilst transmission & distribution, water, airports, diversified, rail, and toll roads detracted. At a stock selection level, positive contributions came from diversified, airports, and transmission & distribution; whilst there were negative contributions from oil, gas storage & transportation, toll roads, water, and communications. There was a neutral effect from rails and ports. The top three individual contributors to relative performance in the period were from an overweight position in CenterPoint Energy in diversified, an underweight position in Crown Castle International Fund Performance underweight position in Crown Castle International Corp in communications, and an overweight position in Plains GP Holdings in oil, gas storage & transportation. CenterPoint Energy saw strong performance on more optimistic expectations from the business review being undertaken, particularly in relation to its investment in Enable Midstream Partners. Crown Castle International Corp was lower on the back of a weak set of results that translated into reduced guidance for leasing growth for 2021. Plains GP Holdings benefitted from constructive fundamentals in the Permian Basin and a stronger balance sheet. The company also announced strong third quarter results and raised full-year guidance, announcing a US$500 million buyback. The bottom three individual contributors to relative performance during the period were from an overweight position in Gibson Energy Inc in oil, gas storage & transportation, and underweight positions (the Fund had no holdings) in ONEOK Inc in oil, gas storage & transportation, and Cellnex Telecom in communications. For Gibson Energy Inc, tighter West Canadian Select differentials have negatively impacted the performance of the marketing segment. ONEOK Inc delivered strong third quarter results, with natural gas liquid volumes exceeding pre-pandemic levels. Cellnex Telecom performed well as it announced a new acquisition and there was also speculation regarding acquiring the large was also speculation regarding acquiring the large tower portfolio from CK Hutchinson Group Telecom
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/unhedge-.pdfAugust, 2020
The Fund outperformed the index during August on a total return local basis. At a sector level, the Fund is overweight in oil, gas storage & transportation, airports, diversified, and rail; and is underweight in communications, transmission & distribution, water, ports, and toll roads. Overall positive contributions to relative returns came from airports, oil, gas storage & transportation, transmission & distribution, rail, communications, and water; whilst toll roads, diversified, and ports detracted. From an asset allocation perspective, positive contributions to relative returns came from airports, diversified, transmission & distribution, rail, water, communications, oil, gas storage & transportation, and toll roads; whilst ports detracted. At a stock selection level, positive contributions came from oil, gas storage & transportation, airports, and communications; whilst there were negative contributions from diversified, toll roads, water, and transmission & distribution. There was a neutral effect from rail and ports. The top three individual contributors to relative performance in the period were from overweight positions in Flughafen Zurich in airports, and positions in Flughafen Zurich in airports, and Gibson Energy Inc and The Williams Companies in oil, gas storage & transportation. Flughafen Zurich reported much better than expected financial results, demonstrating resilience in certain nonaviation revenues and strong cost reductions. Gibson Energy Inc has seen management continue to execute on the growth plan, taking advantage of the positive cash flows. The Williams Companies performed well as strong performance from natural gas has reduced counterparty risk for the gathering and processing segment. The bottom three individual contributors to relative performance during the period were from overweight positions in Pinnacle West Capital Corp in diversified, and Plains GP Holdings and NiSource in oil, gas storage & transportations. Pinnacle West Capital Corp was impacted by risks of a negative outcome from its pending rate case. Plains GP Holdings was impacted by continued concerns on takeaway overcapacity in the Permian Basin which impacted share price performance. NiSource Inc was impacted by market worries on the equity required to execute management's strategic plan.
Portfolio Positioning
We maintained a sizeable overweight allocation to the North American oil, gas storage & transportation segment. Our outlook for the energy segment remains positive, remains positive, as we believe that low-cost US production will continue to drive export growth as overall demand recovers. We also hold an overweight allocation to the transportation segment. We do not believe the recent share price movements in the segment are fully reflecting changes in fundamental profit expectations and we remain confident on our longterm time horizon to search for dislocations in value. We retained an underweight allocation to the utilities segment due to relatively unattractive valuations. However, the recent market correction has resulted in increased volatility within the segment. As the segment is relatively insulated from the economic cycle this has created opportunities, allowing us to selectively add companies when value emerges. We also retained an underweight position to the communications segment. Although we are positive on the theme of digitalisation, connectivity and data usage for the segment, valuations have become even more stretched on the back of the flight to safety due to COVID-19 concerns. Market review Global equities performed well during the month, pricing in a more optimistic and immediate recovery scenario than current uncertainty around economic data and a viable COVID-19 vaccine implementation timeline might suggest. The pandemic situation and trajectory remain widely disparate from a geographic perspective, although second wave outbreaks in general from a global perspective have been less severe than many had feared. US-China tensions have continued to increase, with the US administration moving to ban Chinese owned tech application TikTok and a proposed ban on transacting via the communications application WeChat. China has retaliated, putting pressure on US allies, for example by accusing Australia of using dumping techniques on its wine exports to China. In the US, second wave COVID-19 breakouts occurred across the states as inconsistent state policies and implementation strategies made managing the pandemic harder and with a greater degree of uncertainty. Negotiations over further stimulus programme measures also remain bogged down in partisan politics and are likely to remain a bargaining chip as the elections approach later in the year. As the November elections near there will also be political pressure to avoid a pullback in the equity market, although global market forces could be too strong in the short term to prevent a retracement if the path to the election creates significant uncertainty and volatility. Towards the end of the month, at the Jackson Hole symposium, Federal Reserve Chairman, Powell, announced the central bank would move to an average inflation central bank would move to an average inflation target. This will mean the central bank will be able to overshoot its 2% inflation target to compensate for persistently low inflation. Ultra-low interest rates are likely to continue for the foreseeable future. Despite the ongoing uncertainty, US data has been generally positive with the Institute for Supply Management indices rising more than expected, and with a rise in retail sales and industrial production. Housing starts and permits also moved up and the US composite business conditions Purchasing Managers' Index rose strongly. Initial jobless claims have ticked up, albeit in a downward trend, and continuing jobless claims fell. Increasing US debt and further stimulatory monetary policy initiatives have seen the dollar weaken further. In Europe, the economy appears to be tracing a Vshaped economic recovery path as significant stimulatory measures start to kick in. However, it remains to be seen how robust Eurozone economies will be, once stimulatory measures are wound back, and it is still early days. Business conditions Purchasing Managers Indices fell, possibly partially reflecting concerns about the rising trend in new European coronavirus cases. The composite Purchasing Managers' Index has also fallen slightly but still remains broadly around pre-coronavirus levels. In Asia, Japan's composite business conditions Purchasing Managers' Index remains soft. Household expenditure has edged up, but wages growth remains flat-to-negative. Latest Japanese June quarter gross domestic product data confirmed a close to consensus quarter-on-quarter fall although September quarter gross domestic product is expected to exhibit some recovery. Core Consumer Price Index inflation remains anaemic. In China, the Caixin composite business conditions Purchasing Managers' Index remains robust from a global perspective, consistent with economic recovery remaining on track. Annual growth in industrial production was relatively flat but retail sales growth has increased. New home prices also continue to rise. Although inflation is edging up, this is primarily due to higher food prices with core inflation having actually fallen. Overall, although recent optimism has benefitted global equity markets, it could prove fragile should the COVID-19 and global political environment result in a more risk-off bias. For listed infrastructure, extreme weather in California was a focus this month, as the Independent System Operator declared a Stage 3 emergency and enacted rolling blackouts in parts of the state as record hot weather meant demand exceeded supply. Additionally, a number of wildfires continue to burn in the state. Although, at this stage, none of the fires in California have been stage, none of the fires in California have been connected with ignition from utility infrastructure, we continue to monitor the situation carefully. European airports outperformed during the month despite limited signs of any inflection in the rate of traffic recovery. Strong cost responses from various companies underline the fact that self-help is more an option at airports than in other transport infrastructure assets such as toll roads, rail, and ports. We will be closely following September's traffic data versus August's, particularly in Europe, as schools are scheduled to return and the peak vacation season will be over.
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under LATEST PERFORMANCE REPORT
structure: Managed Fund