August, 2023
PERFORMANCE CONTRIBUTION
Global markets generated positive returns helped by one of the strongest August equity market performances on record. The Nasdaq Index had its best August performance since 2000 and the S&P500 Index since 1986. Much better than anticipated corporate results combined with very supportive liquidity and an improving economic environment provided tailwinds to investor sentiment. However, market leadership remained narrow with a handful of large cap Technology and Consumer Technology stocks having an outsized contribution to overall equity market returns.
While the portfolio has benefitted from the leadership of growth stocks since the stock market bottom in March, this leadership is now increasingly narrow - and with some signs of exuberance last seen in the final months of the technology bubble. Meanwhile, the reality for presumptive buyers of goods such as cars in the US is not as optimistic as share prices imply. In fact, consumer spending in the US has now been flat since the end of June. The macro-economic backdrop is positive though since the global economy is on a recovery course as countries are slowly opening again following lockdowns.
The largest contributors to investment returns in August were Visa, Microsoft, and Amazon.com.
Visa’s share price has lagged in this market recovery, but after reporting surprisingly strong card volumes in the June quarter with US payments volume up in the first three weeks of July, the shares have recouped some ground. The switch from cash to cashless payments seems to have accelerated during the Covid-19 crisis.
Microsoft and Amazon.com continue to see significant demand for both e-commerce and cloud computing services. This together with the positive IT rally led to the solid stock performance during the month.
The largest detractors from investment returns were American Tower, Keyence, and Unilever.
American Tower reported good quarterly results despite the impact of Covid-19, but the company also adjusted its growth estimates downwards. We continue to see American Tower as a key player in making wireless communication possible globally.
Keyence reported quarterly earnings that missed consensus estimates. Even though the company is affected by the Covid-19 pandemic, Keyence is working to maintain longterm growth by enhancing development and strengthening sales. This was also reflected in the stock price which did recover some ground during the month.
Unilever is experiencing some uncertainties in relation to the potential move of its headquarters from the Netherlands to the United Kingdom due to tax reasons but was mainly impacted by the underperformance in Consumer Staples during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/157593337-3.pdfDecember, 2022
The fund returned 4.9% net of fees in the quarter, whereas the MSCI AC World Index returned 4.1. 2022 was one of the most challenging years in a decade for investors, with large declines in both equity and bond markets. In the US, the S&P500 had the worst year since 2008 and its third-worst performance for over 40 years. President Xi strengthened his power as evidenced during China’s Party Congress in October. The same month, the US introduced wide-ranging semiconductor export restrictions to China. At the end of the quarter, the anti-lockdown protest turned so violent that the Chinese authorities decided to lift the restrictions and focus on opening the economy. In the US, the consensus now expects a forthcoming recession, while forecasts for global earnings growth next year stand at low single digits.
The top three contributors for the quarter were Novo Nordisk, HDFC Bank, and Siemens. Novo Nordisk finished the last quarter strongly with the marketing relaunch of its Wegovy obesity treatment in the US. The shares performed strongly all year as earnings continued to accelerate on the back of a strong reception of the company’s new drugs. For the first nine months of 2022, Novo Nordisk’s obesity care business grew 75%. Adjusted earnings per share are set to grow by 17% in 2022 and 25% in 2023, according to consensus estimates. Despite being one of the potentially biggest health issues globally, only 2% of the world’s almost 800 million obese people receive treatment today. Novo Nordisk has a current market share of 86%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/195738846.pdfNovember, 2022
Among the top contributors to performance in November were Sony, ASML and Siemens. Sony, in addition to benefitting from being a cyclical, Asian-listed company with semiconductor exposure, issued a “beat-and-raise” quarterly report. Operating profit in the quarter grew 8% y/y and full-year guidance was raised due to strength in its Music, Movies and Sensor businesses. The company’s largest segment, Game & Network Services, with its key
PlayStation franchise, has struggled with supply of new consoles. Only 3.3 million units were sold during the quarter. Production was almost twice as high though, which bodes well for the upcoming holiday season and for subsequent sales of high-margin software.
ASML held its capital markets day in Veldhoven, Netherlands, and substantially upgraded its guidance for 2025 and 2030. The midpoint of the 2030 revenue guidance was raised more than 30%, due to stronger demand for chips from datacentres, the automotive industry, and industrial applications. Interestingly, ASML also suggested that the need for countries to achieve technological sovereignty will increase the need for semiconductor capacity.
This is expected to add a 1%-point to annual unit growth, and it is a concrete example that globalization is slowing. Atlas Copco, a key sub-supplier to ASML, also highlighted this trend at its recent capital markets day. In the long run, oversupply is bad for everyone, but in the medium term, semiconductor equipment manufacturers will benefit from what ASML expects to be a 10% inefficiency in global semiconductor manufacturing by 2030. Shares of ASML have surged almost 50% since mid-October due to a combination of lower rates, a strong Q3 report and the company’s upbeat long-term guidance.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/193455245.pdfOctober, 2022
Among the top contributors to performance in October were Visa, Novo Nordisk and ASML. Visa reported solid numbers with payment volumes growing 12%, the same pace as last quarter and thus not showing any signs of a consumer slowdown. Cross border travel, and the attributed high margin cross-border-payments, is still a long way below pre-Covid levels. Analysts at Morgan Stanley report that departures to Asia are 52% below 2019 levels and the corresponding number for Europe is 21% below. Visa direct, a key driver for Visa, beyond the cyclical recovery after Covid, grew 42% in the quarter, accelerating by 700 bps. The shares of Novo Nordisk, a key outperformer all year, continued to do well during the month as the European Medicines Agency, EMA, warned of supply shortages of Ozempic, due to increased off-label use for the treatment of obesity. The GLP-1 treatments, led by Novo Nordisk’s Ozempic have gone viral, with Ozempic getting north of 200 million views on TikTok. Supply shortages for its new drug Wegovy soon to be relaunched in the U.S., could continue to be an issue for the company, but the demand is clearly there. The order intake of lithography maker ASML, reached a record high in its third quarter at 8.9 billion EUR. This is up from a range of 1.5-2 billion just a couple of years ago and up 44% over last year. Meanwhile, the company claims that only about 5% of its backlog will be impacted by the new US export restrictions. Its EUV machines, now close to half of its systems sales, have been restricted for sale to China since 2019 and are not affected by the new ban.
Among the top detractors were AIA, Amazon and TSMC. Similar to last month the list of detractors had a geographical tilt, with several of the top detractors being listed in Asia. As the new semiconductor export restrictions were announced, many of our holdings related to this sector experienced further declining share prices. Amazon reported disappointing numbers across the board late in the month with operating income coming in 48% lower than last year, sales guidance weaker than expected and growth in AWS decelerating by 500bps from last quarter. Amazon is one of the companies in the portfolio with the longest-term thinking and the management team normally has a large degree of leeway to take the company through extended periods on increased investments. At the moment though, that long-term thinking, backed by significant investments, is coming up against a rapidly slowing consumer environment, especially in international markets where sales declined 5% over last year and a reversal of overearning during Covid. Amazon arguably overinvested and over hired coming out of Covid at the start of this year. While consumer demand could be weak for a couple of quarters, creating share price headwinds, the investments Amazon is making now will enable it to gain market share as the economy recovers. We have not seen convincing evidence that the shifts to online shopping or the move to the cloud are changing pace structurally.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/192509652.pdfSeptember, 2022
In the quarter, the strategy’s return was negative 0.31%, above the MSCI AC World Index which returned negative 0.34%. The U.S. Federal Reserve hiked rates by 75 bps two times in the third quarter. In combination with U.S. money supply falling at an annualized rate of 1.6% over the last three months, the steepest drop in 84 years, this is starting to influence asset price volatility. The VIX, or “fear index”, increased from a relaxed 20 in mid-August to north of 30 by the end of the quarter. The real spike in volatility though has been seen in the bond and currency markets, where the MOVE index, measuring the volatility of Treasuries, reached close to 160, a level only seen at the Covid-lows and the financial crisis. Several sentiment indicators hit historic lows such as U.S. consumer confidence and the AAII Bull/Bear survey. This is usually a very good sign for subsequent 12-month market returns. On another positive note the second quarter earnings season surprised many investors as the technology giants, Microsoft, Alphabet and Amazon (all holdings in the fund), showed resiliency in an environment where demand clearly is waning and a sequential slowdown from last quarter is evident.
The top three list of contributors for the quarter was comprised of Amazon, Hoya and BCA. Amazon has had a tough 2022 navigating the demand swings during and after Covid. After a period of overinvestments and overstaffing, Amazon reported a strong second quarter report that showed that the company can handle an inflationary environment. Revenue accelerated to 10% growth, adjusted for currencies.
The top three detractors from performance were AIA Group, Sony and Novo Nordisk. On the top ten list of detractors this quarter, we find a lot of Asian names, and companies with sales related to semiconductors. Sony, having both attributes, as well as exposure to a weaker consumer through its gaming business has sold off since mid-August.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/191942326.pdfAugust, 2022
Global markets generated positive returns helped by one of the strongest August equity market performances on record. The Nasdaq Index had its best August performance since 2000 and the S&P500 Index since 1986. Much better than anticipated corporate results combined with very supportive liquidity and an improving economic environment provided tailwinds to investor sentiment. However, market leadership remained narrow with a handful of large cap Technology and Consumer Technology stocks having an outsized contribution to overall equity market returns.
While the portfolio has benefitted from the leadership of growth stocks since the stock market bottom in March, this leadership is now increasingly narrow - and with some signs of exuberance last seen in the final months of the technology bubble. Meanwhile, the reality for presumptive buyers of goods such as cars in the US is not as optimistic as share prices imply. In fact, consumer spending in the US has now been flat since the end of June. The macro-economic backdrop is positive though since the global economy is on a recovery course as countries are slowly opening again following lockdowns.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/157593337-2.pdfJuly, 2022
Among the top contributors to performance in July were Amazon, Home Depot, and Thermo Fisher. Amazon has had a challenging time navigating the demand swings during and after COVID. After a period of overinvestments and overstaffing, Amazon reported a strong second quarter report that showed that the company can handle an inflationary environment. Revenue accelerated to 10% growth, adjusted for currencies, and more importantly, the guidance for the next quarter of 17-21% growth points to an Amazon growing at the rates that we historically have come to expect. Amazon’s AWS-Cloud unit now has a yearly run rate of close to USD 80 billion, growing in excess of 30%. Perhaps more impressive is the surge in the backlog by 65% to USD 100 billion. The shares rose close to 25% during July.
Home Depot, which only reports in mid-August, saw its shares rebound as lower bond yields and mortgage rates have taken some pressure off the consumer. Late last year 30-year mortgage rates in the U.S. stood at 3%, only to move to 6% in June of this year and as of the end of July now stand at 5.3%. Thermo Fisher raised its full-year sales forecast for the second time this year, on the back of another solid quarterly report. While the clinical end-market declined by 20% due to less COVID testing, core organic growth came in at an impressive 13%. The strength was broad-based with China growing more than 20%, despite lockdowns, and the biopharma end-market growing in the midteens percent.
Thermo Fisher’s PPD, a clinical research services provider, is doing particularly well and the company raised guidance for this unit to 12% growth for the full year. This is pleasing since PPD, an acquisition that closed in December last year, is another testament to Thermo Fisher’s solid track record of inorganic growth. As the balance sheet shrinks below 2x Net-debt to EBITDA, this year, the company could be ready for another sizable acquisition, something the shares historically have reacted positively to.
Among the top detractors were AIA, Procter & Gamble and Bank Central Asia. None of the detractors this month made up a large negative contribution to performance. They simply failed to rise as much as a rapidly surging market. AIA, one of June’s largest contributors gave up some performance, possibly because they usually pause their buybacks one month ahead of the quarterly reports, which sometimes have led to a more volatile stock price.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/189907764.pdfJune, 2022
MARKET PERSPECTIVES
The second quarter marked the end of the worst first half-year since 1970 for US equity markets and the worst first half-year for global equity markets since the launch of the MSCI World index in 1986. This has clearly been a six-month period full of negative catalysts, such as the war in Ukraine, draconian lockdowns in China, continued supply chain disruptions, higher inflation, and an aggressive hiking cycle by the US Federal Reserve (Fed) supplemented by quantitative tightening. There are some signs though that inflation is peaking with U.S. 10-year rates down close to 50bps from the high mid-month. Furthermore, many cyclical commodities are down substantially from their highs, copper for instance by 25% since the highs in March, signalling the anticipation of a weaker economy and rising chances of a Fed that need to become more dovish at the end of the year, a development that should support heavily de-rated growth stocks. There are also tentative signs that the Chinese lockdowns seem to be getting less restrictive something that supported Chinese equity markets during the month. If the lockdowns are eased further this would remove one dampening effect on the global economy.
PORTFOLIO PERSPECTIVES
In the quarter, the strategy marginally outperformed the benchmark. The top contributors for the quarter were AIA, American Tower, and Novo Nordisk. After a long period of transforming its agency network in China from a mass-market sales force to more modern distribution channels, AIA in May saw a development of increasing numbers of agents. While it is too early to tell if the transformation is complete, so far this year AIA has reduced its number of agents by only four percent and may now see increases in all regions in China. After very strong momentum all year in its obesity franchise, the market now expects another upgrade to guidance when Novo Nordisk reports results in early August. Furthermore, the third quarter is full of catalysts with phase 2 data on CagriSema in type two diabetes and supply updates for Wegovy among the most anticipated. The shares traded strongly ahead of these events. American Tower benefitted from investors flight-to-quality during the quarter.
The top three detractors were Amazon, Alphabet and ASML. Equity prices of technology companies with exposure to the digital ad market, such as Alphabet and Amazon suffered after the competitor Snapchat preannounced negative results and pointed to broad-based weakness in digital ads across regions and verticals. There are some reasons to believe that this could mostly be an issue for Snapchat and not the broader group of all digital ad companies. Snap has minimal exposure to the travel segment and with consumers shifting spending to travel away from buying merchandise, Snap could be a relative looser.
The semiconductor industry experiences a downturn every 3-4 years often triggered by GDP growth falling below 3%. Increasing pressure on more consumer-focused products such as PCs, 5G Phones and gaming cards and their related chips, could now also start to spill over into datacenter- and cloud-related semiconductors where demand still has held up. The average semiconductor downturn sees 12-month forward P/E-ratios falling on average by 26%. This downturn, however, has so far seen P/E-ratios falling by 42%, suggesting the bottom in semiconductor stocks could be near. While this does not consider high starting valuations, one supporting factor is the more structural growth we now see in the semiconductor sector as increasing penetration of chips in everything from smartphones, cars, and sensors are helping to offset the cyclical headwinds.
PORTFOLIO CHANGES
During the quarter we sold the investment in Unilever and added the industrial gas company Linde. Linde together with Air Liquide and Air Products forms an oligopoly in the western industrial gas industry. As these suppliers of compressed oxygen, nitrogen and other gases are highly integrated with their customers and as contracts are long-term in nature, the revenue streams are highly predictable. Unilever has a disputable track record in value creation, especially from expensive bolt-on acquisitions in recent years. In addition, the more recent debacle around the GSK Consumer Health bid has reduced our faith in the management team’s strategy on capital allocation.
May, 2022
Among the top three contributors to performance in May were HOYA, NextEra, and American Tower.
HOYA reported solid numbers, with sales growing 12% over last year despite drags from chip shortages and pandemic restrictions in Japan affecting sales of its contact lenses. HOYA’s sales of EUV mask blanks, where the company is the clear market leader, grew 20%. In turbulent markets and with inflation fears remaining companies such as NextEra and American Tower with inflation protection written into contracts held up better than the market.
Among the top detractors were Novo Nordisk, Amazon, and Alphabet. Shares of Novo Nordisk declined in May but have performed well this year, being up 4% in an environment where many stocks are flirting with bear market territory. In the U.S. its GLP-1 franchise now commands a 61% market share and for Ozempic, growth seems to be accelerating, driven by pull from patients and word of mouth. Investment bank SEB reports that Ozempic now has more than 74 million views on TikTok compared to competitors Lilly’s Trulicity at 5.5 million.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/188076456.pdfApril, 2022
Among the top contributors to performance in April were Procter & Gamble, Novo Nordisk, and Home Depot. Procter & Gamble reported very strong sales numbers with organic sales coming in at 10% over the same period last year.
The company reiterated its 3-6% guidance for growth in earnings per share, but due to growing cost pressures pointed investors to the low-end of that range. Among the top detractors were Alphabet, Sony, and Amazon. Unsurprisingly this month the top detractors could all be found among the portfolio’s technology holdings. Alphabet reported solid growth in its search business with constant currency growth of 27%. However, YouTube, which investors expect to be the firm’s growth engine over the coming years, slowed to 17% growth, due to the Ukraine conflict resulting in companies becoming more cautious on ad spending, tough comps from last year and YouTube viewers trying the new (but still not monetized) Shorts videos. The latter have been set up as an answer to competition from TikTok, and with viewership up four times over last year and monetization happening later this year, the business should soon start to turn from a growth headwind to a tailwind. Amazon, which has been in investment mode for the last two years, reported that its cloud offering, Amazon Web Services, grew 37% over last year, faster than expectations. However, Amazon’s other businesses saw a much weaker development. Its ad revenues slowed to 23% growth vs 33% in the last quarter and its e-commerce business is being hurt by weaker demand and cost increases.
The management team pointed out USD 6 billion in extra costs during the first quarter, with USD 2 billion driven by wage inflation and fuel costs and the remaining USD 4 billion by lower productivity. Amazon can adjust its workforce, but the rebound in the shares will need to wait until margins stabilize.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/186775830.pdfFebruary, 2022
Among the top three contributors to performance in February were Bank Central Asia, Amazon, and AIA Group. Indonesian Bank Central Asia has risen strongly since last summer on the back of rising global rates. BCA has a high CASA (current and savings account) ratio of 79% vs a sector average of 60%. Having a high CASA ratio means that the bank can fund itself cheaply as rates on savings accounts are low and thus will benefit as costs for funding will rise slowly boosting interest margins. Amazon’s shares have been moving sideways for almost two years after the sharp runup during the initial pandemic.
The shares have been held back by fears of increased labour costs for its 1.6 million employees, supply chain disruptions and a heavy investment program. During its earnings call in early February the company seemed more positive on staffing issues and disclosed for the first time that its advertising revenue came in at USD 31 Billion in 2021, up from below USD 3 Billion in 2016.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/185084911.pdfJanuary, 2022
Among the top contributors to performance in January were Visa, TSMC, and AIA. In what is clearly a macro driven market, banks and insurance companies performed strongly, as interest rates rose. Visa reported payments volumes growing 20% over last year and net revenues up 25%. Operating margins continue to expand even at these high levels and moved up to 70%, up an impressive 220 basis points from 2020. While Visa does not provide formal guidance, their internal assumptions are for net revenue to grow at the “high-end of teens” in fiscal 2022. The shares surged 11% on the day after the report was released. TSMC raised its long-term guidance to 15-20% revenue growth and is showing it can grow profitably, as it also raised its long-term guidance for gross margins.
The company expects to grow revenue in the mid-twenty percent range for 2022 driven by HighPerformance Computing, which in turn is driven by increased use of cloud computing and its Artificial Intelligence and Machine Learning applications. While some investors are starting to fear a downcycle in semiconductors, and one should not forget that this is still a cyclical sector, each subsequent downturn has proven to be shallower than the previous one. This reduced cyclicality in combination with the company’s strong outlook is setting up TSMC to weather a more difficult short-term environment.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/184217438.pdfDecember, 2021
Q4 was characterized by increasing fears of inflation and the outbreak of the new Omicron variant, temporarily sending markets lower before ending the year more positively. For the quarter, BNP Paribas C WorldWide Global Equity Trust returned 6.7%, while the MSCI AC World Index returned 6.0%. Among the best contributors in the quarter were Home Depot, Thermo Fisher and Novo Nordisk. Shares of Home Depot have been very strong throughout the year spurred by rising real estate prices and increased demand for home improvements. Home Depot has been able to raise prices and pass on cost inflation to customers thereby protecting gross margins. Thermo Fisher continued to rise as new virus variants are driving demand for PCR-testing, where Thermo Fisher is a market leader. Among the worst contributors were HDFC, AIA and Hoya continuing a key theme of 2021 of Asian equities underperforming on the back of fears of a credit and housing bubble in China and increased Chinese regulatory scrutiny of several sectors. The Chinese insurance sector is undergoing a difficult transition towards a more modern and efficient distribution model. This in combination with a turbulent situation for the Chinese real estate market has affected insurance companies such as AIA. HDFC suffered at the end of the year as a key agricultural reform was unexpectedly withdrawn.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/182483082.pdfNovember, 2021
Among the top three contributors to investment returns in November were Home Depot, Hoya, and Sony. Home Depot, the world’s largest home improvement firm, cited broad-based acceleration when they reported results. Higher home prices and thus higher consumer wealth in combination with a renewed focus on the home after almost two years of a working-from-home environment have created a positive backdrop for spending on home improvements. Contrary to expectations going into 2021, where spending on services was expected to take some steam out of the sector, sales have continued to grow strongly with same-store-sales accelerating to over 6% over last year.
Hoya reported strong quarterly results at the end of October. Fears of a large impact by material shortages were proven incorrect. The company’s overall sales grew by a healthy 16% over last year, largely driven by its Technology business with growth of 27%. EUV (Extreme Ultraviolet Lithography) mask blanks and HD Substrates grew both in volume and in average sales prices, thus offsetting higher depreciation expenses. Sony, which saw its earnings prospects revised upwards in late October after a strong earnings report, continued to move higher, now also helped by the fact that Sony’s subsidiary, Sony Semiconductor Solutions, will co-invest with TSMC in building a new semiconductor plant in Japan. While only a small investment, this should help secure semiconductors for Sony’s image sensor business and is an indicator of expectations of continued strong growth.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/181391536.pdfSeptember, 2021
The third quarter began with falling rates and optimism as the world economy started to reopen but ended with investor pessimism and waning markets. The Chinese government clamped down on the domestic internet giants and the property company China Evergrande moved closer to defaulting. Bond yields rose at the end of the quarter sending predominantly longer duration assets such as technology shares lower. In the quarter, the BNP Paribas C WorldWide Global Equity Trust returned 7.3% net of fees, outperforming the MSCI AC World Index, which rose 2.8%. HDFC, Sony and Hoya were among the top contributors. HDFC, the largest position in the fund, benefitted as the number of Covid-19 cases in India continued to decline after a peak in late spring. Vivendi listed its Universal Music Group (UMG), which provides an interesting valuation benchmark for Sony Music. Using similar multiples as the listed peers, Sony Music could be valued close to USD 50bn, or around 40% of Sony’s market cap*. Hoya, which produces mask blanks for the new Extreme Ultra-Violet machines sold by ASML to semiconductor plants, surged higher as the semiconductor shortage became even more acute
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/180008773.pdfAugust, 2021
Global markets generated positive returns helped by one of the strongest August equity market performances on record. The Nasdaq Index had its best August performance since 2000 and the S&P500 Index since 1986. Much better than anticipated corporate results combined with very supportive liquidity and an improving economic environment provided tailwinds to investor sentiment. However, market leadership remained narrow with a handful of large cap Technology and Consumer Technology stocks having an outsized contribution to overall equity market returns.
While the portfolio has benefitted from the leadership of growth stocks since the stock market bottom in March, this leadership is now increasingly narrow - and with some signs of exuberance last seen in the final months of the technology bubble. Meanwhile, the reality for presumptive buyers of goods such as cars in the US is not as optimistic as share prices imply. In fact, consumer spending in the US has now been flat since the end of June. The macro-economic backdrop is positive though since the global economy is on a recovery course as countries are slowly opening again following lockdowns.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/157593337-1.pdfJune, 2021
Investor confidence is rising as the world economy recovers with vaccination levels going up. Paradoxically, the key US 10-year bond yield declined in an environment of strong economic growth, where GDP in the US grew 10%, companies reported strong earnings growth, South Korean exports rose to a 10-year high and economic sentiment in Europe almost reached a 35-year high.
In the quarter, the BNP Paribas C WorldWide Global Equity Trust returned 7.8% net of fees, trailing the MSCI AC World Index, which returned 9.0%. The underperformance can largely be attributed to weakness in some of our Asian investments, partly due to the stronger dollar. Some of the best contributors were Alphabet which reported very strong numbers with revenues growing 35% driven by Search growing 30%, YouTube 49% and Cloud 46%. Microsoft and Amazon were also strong performers as the Covid pandemic is accelerating the digital transformation and transition to the cloud.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/174851947.pdfMay, 2021
The top three contributors to performance in May were HDFC, Hoya and Novo Nordisk. HDFC, an Indian housing finance company, has only seen a limited impact from the second Covid-19 wave in India. The company reported strong numbers for both operating profit and loan disbursements, and management is confident that the loan book can grow over the next 3-5 years driven by increased urbanisation.
Hoya saw its IT segment grow 20% when the company reported last month, driven by shipments of EUV mask blanks growing 80% over last year. Hoya’s Life Care segment has been hurt by a healthcare system fully pre-occupied with Covid-19 and its contact and eyeglass business has seen a dampening in demand due to lockdowns. We see the latter two headwinds disappearing while EUV blank sales should remain strong as Samsung and TSMC further increases its use of EUV-technology to supply the most advanced semiconductor chips. The narrative around Novo Nordisk is slowly changing as it is increasingly looked
upon as an anti-obesity company and with the expected approval of the Semaglutide treatment for obesity in the US in early June as a trigger for the stock. Around 650 million people in the world are obese, around 1/3 of the US population and total global healthcare costs related to obesity are estimated to be around one trillion USD in 2020.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/173050820.pdfFebruary, 2021
The top three contributors to performance in February were Visa, Alphabet and HDFC. The keen reader of this monthly letter might remember that last month Visa and HDFC were among the top three detractors, and now as stimulus and renewed hopes of economies re-opening dominated in February, “re-opening” companies and financials did particularly well.
Visa has been somewhat of a laggard since the initial market bounce in late March 2020 and is largely dependent on cross-border transactions associated with travel to accelerate growth. As vaccination rates have crept higher - and airlines saw a surge in bookings - Visa gained, also helped by a strong report at the end of January. Alphabet also features in the same category of laggards. Since the upswing from last summer, the stock has trailed other large tech companies. However, following stellar numbers in February, the stock made a strong comeback. Its core search revenues were up 17% and YouTube revenue was up an impressive 46%. Alphabet’s important travel category will also likely be positively impacted by economies finally re-opening.
The top three detractors to performance were Thermo Fisher Scientific, Hoya and Keyence. Thermo Fisher reported strong Q4 numbers with total sales growth for 2020 coming in at 25%, but with a more modest growth assumption of 7% for 2021. This disappointed some investors who suspected that the company might struggle to meaningfully grow in 2021 after such a strong 2020. We take a longer view and think the market is failing to recognise that we will enter a world of much more testing, and thus demand for Thermo Fisher Scientific’s equipment and consumables.
Hoya’s quarterly report cited a story of two tales, with sales of EUV blanks to the semiconductor industry growing more than 50% but offset by sales of glass substrates to hard drives down 10%, resulting in overall flat sales.
Keyence, another Japanese company, reported a continued lag in ordering new control equipment in its domestic market. In its largest market, Japan, sales fell 4% last quarter, but grew 5% in Europe and the US and a strong 15% in Asia. We think that it is just a matter of time before the Japanese market picks up as we have seen in other markets such as China, which was the first major economy coming out of lockdowns.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/168483576.pdfDecember, 2020
Among the top contributors to performance in December was Samsung that also belongs to the leading sectors for the full year. Additionally, AIA Group performed well in the last month of 2020, but the top spot was, as last month, taken by Indian HDFC. Indian financial companies have rallied strongly since September on results showing lower non-performing assets than what the market expected.
HDFC is up close to 60% since September but still trades only in line with its five-year average measured on Price/Book. Samsung is geared towards the booming semiconductor sector with their foundry business producing the most advanced 5 nanometre chips, found for instance in Apple’s new 5G-iPhones. The top three detractors to performance were S&P Global, Home Depot, and American Towers. S&P Global announced a merger with IHS Markit. Market fears of initial earnings dilution in combination with weaker comparative sales growth and strong 2020 debt issuance saw the shares decline in December.
We believe these short-term fears to be misguided as this new business combination puts S&P Global’s oligopolistic position in ratings and strong position in indices together with IHS Markit’s market data business in good standing. This should provide for less volatile revenues and substantial cost synergies going forward. Despite reporting profit per share rising 26% year-over-year in November, Home Depot’s shares have, after a very strong initial bounce from March to August, remained flattish. This is likely due to investors anticipating a potential renewed lockdown in the US with the number of COVID-19 cases rising rapidly and the new administration taking office in January
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/163566340.pdfNovember, 2020
The top contributors to performance in November can all be found in the financial sector, or with exposure to the cyclical semiconductor industry. On top of this list are HDFC, Visa and ASML. HDFC is benefitting from higher yields and strong emerging market performance. Visa has lagged the markets recently, but with prospects for a reopening of economies increasing and perhaps travel starting to show some signs of normalcy next year, its shares surged 13% in November. Finally, ASML, sole supplier of the key EUV- technology (followed by Hoya and Samsung, two other companies involved in the semiconductor supply chain, gained 17%. Thus, the moves in share prices we saw in November more resemble an entire strong year for these companies’ shares rather than what one would expect in a single month.
The top three detractors, Thermo Fisher Scientific, Nestlé, and American Tower, all declined in absolute terms in what was undoubtedly a strong month for global markets. They all also belong to the safe-havens we saw losing across the board, or in the case of Thermo Fisher Scientific, to a group of companies that has benefitted from extra demand due to COVID-19. Thermo Fisher Scientific recently issued guidance for an unprecedented 19% sales growth for 2020, and investors now fear that some of that growth will be tempered as the need for COVID-19 tests will be reduced after the launch of the vaccines.
On the contrary, we believe that COVID-19 will be a trigger for a new era of increased testing and diagnostics. We also find some comfort in the fact the shares of Thermo Fisher Scientific are up 34% year to date, and while declining in November is still a top three contributor to the performance so far this year.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/163074345.pdfOctober, 2020
During October, we only made minor changes to the portfolio by selling Siemens Energy (received last month from the spin-out of Siemens) and reducing Keyence, while increasing positions in S&P Global and Samsung Electronics. Valuation is not a starting nor ending point for us but companies with higher valuations are in certain situations more vulnerable to multiple fades and/or disappointments derived from shorter-term operational challenges. In the case of Keyence, we continue to like their very resilient business model with strong end market demand.
Taking these factors into account and considering the strong revaluation over the last four years, we have decided to reduce the holding. We still find the company’s high earnings potential interesting, which is based on not owning manufacturing facilities and around 70% of the company’s new products being world and industry firsts.
We decided to sell Siemens Energy which was recently spun-out of Siemens. The holding in Siemens Energy is fairly small and although the company has the interesting windmill assets of Siemens Gamesa, it also has exposure to a lot of less interesting businesses exposed to the fossil fuel industry.
Instead, we added to our recent purchases of S&P Global and Samsung Electronics.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/157593337.pdfAugust, 2020
Global markets generated positive returns helped by one of the strongest August equity market performances on record. The Nasdaq Index had its best August performance since 2000 and the S&P500 Index since 1986. Much better than anticipated corporate results combined with very supportive liquidity and an improving economic environment provided tailwinds to investor sentiment. However, market leadership remained narrow with a handful of large cap Technology and Consumer Technology stocks having an outsized contribution to overall equity market returns.
While the portfolio has benefitted from the leadership of growth stocks since the stock market bottom in March, this leadership is now increasingly narrow - and with some signs of exuberance last seen in the final months of the technology bubble. Meanwhile, the reality for presumptive buyers of goods such as cars in the US is not as optimistic as share prices imply. In fact, consumer spending in the US has now been flat since the end of June. The macro-economic backdrop is positive though since the global economy is on a recovery course as countries are slowly opening again following lockdowns. The largest contributors to investment returns in August were Visa, Microsoft, and Amazon.com.
Visa’s share price has lagged in this market recovery, but after reporting surprisingly strong card volumes in the June quarter with US payments volume up in the first three weeks of July, the shares have recouped some ground. The switch from cash to cashless payments seems to have accelerated during the Covid-19 crisis. Microsoft and Amazon.com continue to see significant demand for both e-commerce and cloud computing services. This together with the positive IT rally led to the solid stock performance during the month.
The largest detractors from investment returns were American Tower, Keyence, and Unilever.
American Tower reported good quarterly results despite the impact of Covid-19, but the company also adjusted its growth estimates downwards. We continue to see American Tower as a key player in making wireless communication possible globally. Keyence reported quarterly earnings that missed consensus estimates. Even though the company is affected by the Covid-19 pandemic, Keyence is working to maintain longterm growth by enhancing development and strengthening sales. This was also reflected in the stock price which did recover some ground during the month.
Unilever is experiencing some uncertainties in relation to the potential move of its headquarters from the Netherlands to the United Kingdom due to tax reasons but was mainly impacted by the underperformance in Consumer Staples during the month.
CHANGES TO THE PORTFOLIO There were no changes to the portfolio during August
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/157593337.pdfticker: ARO0006AU
commentary_block: Array
factsheet_url:
https://documentscdn.financialexpress.net/Literature/75C27DF4764F0E9575DBB4BA0597B87D/157593337.pdf
https://investmentcentre.moneymanagement.com.au/factsheets/mi/n3u2/carnegie-worldwide-equity-trust
release_schedule:
fund_features:
Carnegie Worldwide Equity Trust aims to achieve long-term capital growth exceeding the return of the market by investing in global equities and generate excess returns relative to the Benchmark over a 3 year period.
- Invests in all types of ordinary shares and equivalents of US and non-US issuers.
- Seeks to add value by using the Bottom-up Fundamental Research of MFS equity investment professionals to select equity securities that are expected to demonstrate superior long-term earnings growth.
manager_contact_details: Array
asset_class: Foreign Equity
asset_category: Large Growth
peer_benchmark: Foreign Equity - Large Growth Index
broad_market_index: Developed -World Index
structure: Managed Fund