March, 2023
The portfolio returned 7.28% in the quarter, versus the benchmark return of 6.60%.
The biggest contributors to portfolio return were Salesforce (profit margin expansion from cost efficiency efforts rapidly showing in numbers), Booking Holdings (strong Q4 results with gross bookings +58% year on year) and Rentokil Initial (uplift in organic growth guidance and Terminix synergies).
The biggest detractors to return were Frontier Communications (sold off on broker downgrade two days before month end), Eurofins Scientific (lag between higher costs and pricing to impact FY23 margins) and Danaher (market concern over a rumoured acquisition).
This quarter proved once again that equity markets can climb a ‘wall of worry’, rallying despite universally awful headlines. 2023 has so far seen the 2nd and 3rd biggest US bank failures in history, the hastily arranged rescue of Credit Suisse by UBS, ongoing interest rate hikes from central banks, nuclear rhetoric from Russia in Ukraine and the first indictment of a US President on criminal charges. Yet the overall index had a fine start to the year.
In truth market breadth was extremely narrow, reminiscent of 2020/21 where the market was propped up by NASDAQ. The outperformance of US tech in 2023 versus medium and smaller businesses is stark, March saw the second widest spread in the past 20 years with NASDAQ +7% versus Russell 2000 -5%. Given the portfolio’s underweight to mega-cap tech and overweight in medium and smaller-sized businesses, we would typically expect the portfolio to lag this type of market move.
As an indication, the top 10 index weights accounted for 4.2% of the benchmark’s 8.6% gain. In other words, the top 15% delivered almost 50% of the return.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/31032023-CI-GLOBAL-EQUITIES-FUND-HEDGED-1.pdfDecember, 2022
The Portfolio rose by 4.1% over the December quarter, compared to the Benchmark return of 5.6%. For the Financial Year to December 2022, the Portfolio rose by 0.9% whilst the Benchmark declined by 2.7%. Our China and Hong Kong holdings detracted 73bps of outperformance. After lagging the global and other Asian markets for over a year, the Chinese markets regained some lost ground and rose by 8.6% over the December quarter on optimism around China re-opening.
Our Portfolio stocks gained 7%, as shares of AIA Group, Pinduoduo, and YUM China rose. As this letter went to print, nearly all COVID restrictions were lifted in China. Flights and trains resumed, offices re-opened, and quarantine and testing requirements were scrapped. We are pleased to see the final commitment to opening after one year of back-and-forth policy changes. However, three years of strict lockdowns had left indelible marks. Jobs that were lost could not be regained overnight. Businesses that shut also take time to re-open. We continue to observe significant financial pressure on businesses, consumers and local governments. Value for money becomes the most important element in purchasing decisions.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/31122022-CI-ASIAN-EQUITIES-FUND-RETAIL2.pdfSeptember, 2022
The Portfolio declined by 3.0% over the September quarter, compared to the Benchmark decline of 7.8%.
Our China and Hong Kong holdings attributed 300bps of outperformance. The Chinese markets continue to underperform the overall region, declining by 16% compared to 8% for broader Asia. Both our capital allocation (the Portfolio is less exposed to China than the index) and stock picks (our Chinese holdings also fared better than the market) added value. China Mobile, Yum China and YTO Express were the notable contributors, whilst China Meidong, China Mengniu, and Yili detracted from performance. We wrote in our last letter that a large part of our underperformance during the June quarter was due to our portfolio ‘missing out’ on the excitement of re-opening post COVID.
We were confident that although our companies were not the hot ‘re-opening’ stocks, gradually normalizing operating conditions will suit them well over the long term. Our portfolio did not disappoint us – the June reporting period was a good one, with over 80% of our companies beating the expectations (albeit low ones) by a wide margin. Their outlook for the future also remains optimistic. Take Tencent as an example. It recorded a small revenue decline of 3% during the June quarter, mostly driven by declining advertising revenues as Shanghai (the center for advertising in the country) was in lockdown. However, this was better than feared and more importantly, exciting new revenue streams are emerging for the first time in 18 months. Tencent’s video account advertising product is ramping up fast, enjoying a lot of user time and attention and just started to monetize. Tencent is confident in its ability to implement cost discipline and restart profit growth ‘regardless of the state of the macro economy”. Its management team is also putting their money where their mouth is – over the past few months, Tencent is liquidating its investments in other companies to buy back its own shares. Using their own words, “our stock is the best investment we can find in the market today”.
China Mobile is another good example. It reported a solid set of June results, with service revenues and EBITDA both growing a healthy clip of 7-8%. It also announced raising the dividend payout ratio from the current 58% to 70% or above in 2023, one year ahead of expectations. The strategic shift from heavy capex investment to capital return is very meaningful – as of 1H’21 the payout ratio was still less than 50%. China Mobile’s current dividend yield is 9%, and likely to rise further to 10% and beyond in 2023.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/30092022-CI-ASIAN-EQUITIES-FUND-RETAIL2-1.pdfJune, 2022
The Portfolio declined by 5.7% over the quarter, compared to the Benchmark decline of 0.63%. 90% of the underperformance came from China, where the Chinese markets performed well and gained 12% during the quarter.
The Portfolio has less exposure to China than our Benchmark, and holds defensive companies that do not benefit quickly when the economy first re-opens. With a return to normalcy and no further major lockdowns, our Portfolio holdings will stand to do well. Outside of China, Southeast Asia, India, Korea and Taiwan suffered declines ranging from 6% to 13%. Our stocks in these regions, in aggregate, performed roughly on par to the Benchmark.
For the 12 months ended in June 2022, the Portfolio declined by 26%, compared to the Benchmark decline of 18%. We share the deep disappointment with our investors – CI staff are the largest group of unit holders of our Fund. Quite a number of large Portfolio holdings performed strongly over the 2020-2021 period, as winners during the pandemic. Examples include private hospitals in India, or an eCommerce company in Taiwan. As their strong operating performance continued, their valuation multiples also rose to historically high levels. Both the relative performance and valuation multiple took a sharp negative turn as the Asian economies re-opened.
We suffered the curse of the round-ticket journey. Our Portfolio companies grew earnings by 15% over the past 12 months. This was achieved against generally weak GDP growth in the region. We expect these earnings to grow at a more modest but still attractive level of 8% in the next 12 months. Our Portfolio management teams lived up to expectations under strenuous testing. They doubled down on long term strategy, pivoted, problem solved and found solutions in the austerity. They worked around the clock tirelessly and kept their employees safe and productive, the factories running and customers happy. They also uphold high governance standards by giving shareholders full and transparent disclosure.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/30062022-CI-ASIAN-EQUITIES-FUND-RETAIL2-1.pdfMarch, 2022
The largest detractors to return for the quarter were Ferguson, API Group and IQVIA, all of which sold off ~15-20% though no company specific news. Finally the quarter saw high currency volatility with a strong Australian dollar bucking the usual pattern of weakness during times of a market sell-off. The AUD gained ~4% against the USD, ~6% against Euro and Pound, and ~10% against the Japanese Yen.
The portfolio is positioned around Subsets of Value:
• Stalwarts (32% of the portfolio) – sturdy, strong and generally larger companies with world class privileged market and competitive positions (AON).
• Growth companies (35%) – growing companies with identifiable value propositions using traditional value metrics and run by focused, prudent and experienced management (Costco).
• Bond like equities (4%) – stocks with secure, low-volatile dividends that can be grown and recapture inflationary effects over time (Ferrovial).
• Low risk turnarounds (5%) – sound businesses with good management and balance sheets. (Vontier).
• Asset plays (3%) – stocks with strong or improving balance sheets trading at discounts to net asset value or replacement value (Sony Corp).
• Cyclicals (17%) – stocks showing both upside and downside leverage to the cycle with experienced and contrarian managers who allocate capital prudently (Ferguson).
December, 2020
The portfolio is positioned around Subsets of Value:
• Stalwarts (35% of the portfolio) – sturdy, strong and generally larger companies with world class privileged market and competitive positions (AON).
• Growth companies (38%) – growing companies with identifiable value propositions using traditional value metrics and run by focused, prudent and experienced management (Costco).
• Bond like equities (2%) – stocks with secure, low-volatile dividends that can be grown and recapture inflationary effects over time (Ferrovial).
• Low risk turnarounds (7%) – sound businesses with good management and balance sheets. (Cerner).
• Asset plays (4%) – stocks with strong or improving balance sheets trading at discounts to net asset value or replacement value (Sony Corp).
• Cyclicals (11%) – stocks showing both upside and downside leverage to the cycle with experienced and contrarian managers who allocate capital prudently (Ferguson).
asset_class: Foreign Equity
asset_category: Large Blend - Fundamental
peer_benchmark: Foreign Equity - Large Fundamental Index
broad_market_index: Developed -World Index
manager_contact_details: Array
ticker: CIP0003AU
release_schedule: Quarterly
commentary_block: Array
factsheet_url:
https://www.cooperinvestors.com/performance-reports/reports/
Click on the related Fund name and month
fund_features:
Cooper Investors Global Equities Fund (Unhedged) aims to outperform the MSCI AC World net dividends in Australian dollars over the long term. The Manager aims to invest in the most attractive investment opportunities identified by CI’s VoF research philosophy, through the lens of a long term investment horizon. The Manager’s vision and strategy is the global application of the CI Way, its equities value and capital application model. Central to the CI Way is VoF, a discipline to process complex qualitative and quantitative information on stocks and industries. VoF stands for: 1. Value latency, 2. Operating, industry and strategic trends, 3. Focused industry and management behavior.
structure: Managed Fund