September, 2023
• The Fund returned -3.50%, net of fees, in September 2023, compared with a return for the Benchmark of -3.77%.
• Most sectors detracted in September in unhedged terms, with the Energy sector being the sole contributor. For the Fund, the largest relative sector contributors included holdings in Health Care, such as GSK and Novartis, and holdings in Materials, such as Corteva. Relative detractors included holdings in Financials, including ICE and S&P Global, and a lack of exposure to the Energy sector.
• GSK was among the top individual contributors to performance in September. The company’s recently launched respiratory syncytial virus (RSV) vaccine, Arexvy, is performing ahead of market expectations. Early data suggests its market share in the US is close to 70%, well ahead of initial market expectations of a 50:50 split with Pfizer. Arexvy also received regulatory approval in Japan, a large market with significant unmet need for adult RSV vaccines. This adds to the regulatory approval gained in Europe in June.
• Zillow was among the top individual detractors from performance in September. The stock’s weakness appeared to be driven by a combination of profit taking following strong year-to-date performance and a rise in longer-term US interest rates that is likely to continue to depress US housing transaction volumes. Franchise Partners are mindful that the on-going weakness in housing transactions could significantly reduce Zillow’s near-term free cash flow generation. However, Franchise Partners maintain the belief that the company can deliver above market revenue growth next year even if US housing transactions remain low due to new product initiatives that are starting to lead to large market share gains.
• During the month, Franchise Partners completed the initial purchase of Estee Lauder, and the final sale of Microsoft. Estee Lauder has leading market positions across all major luxury sub-categories of skincare, make-up and fragrances. Having followed the company for many years, the opportunity to initiate the position arose from the 60% share price decline price from its April 2022 peak. This decline was driven by a rapid slowdown in the company’s most profitable travel retail channel, particularly in Asia. Franchise Partners view this slowdown as transitory and expect profits, margins and cash flows to revert towards historic levels in the years ahead. This recovery is underpinned by long term demographic trends that are supportive of Asian travel retail, including growing female workforce participation in Asia, a growing middle-class population, and increased international travel. Although Franchise Partners continue to admire the quality of the Microsoft business, having generated attractive returns since the position was initiated, the valuation no longer represents an attractive risk-reward proposition.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/205860438.pdfAugust, 2023
• The Fund returned -1.30%, net of fees, in August 2023, compared with a return for the Benchmark of -1.85%.
• Most sectors advanced in August in unhedged terms, led by Energy, Health Care, and Communication Services. For the Fund, the largest relative sector contributors included holdings in Financials, such as Aon and ICE, and holdings in Consumer Discretionary, namely Booking Holdings and eBay. Relative detractors included holdings in Materials, namely Corteva, and a lack of exposure to the Energy sector.
• News Corp. was among the top individual contributors to performance in August. The company released better-than-expected fourth quarter results. Digital represented more than 50% of total revenues for the full year, the first time in the company’s history. The growth of business-to-business products in the Dow Jones division was strong and is likely to be the largest contributor to the division’s profits next year. Further, subscription video service Foxtel returned to growth and is expected to complete a refinancing that should facilitate repayments of outstanding shareholder loans from News Corp., a first step towards a potential IPO.
• Electronic Arts was among the top individual detractors from performance in August. The company reported solid first quarter results, but management’s guidance for the full year was weaker than expected. Franchise Partners are not overly concerned about the full year outlook, as it is driven by weakness in EA’s lower-value shooter title Apex Legends and its mobile division. Importantly, performance of the company’s core sports titles is strong, and Franchise Partners expects revenues and margins to improve next year once the multiple titles currently in development are released.
• There were no initial purchases or final sales within the portfolio during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/204275951.pdfJuly, 2023
• The Fund returned 1.07%, net of fees, in July 2023, compared with a return for the Benchmark of 2.84%.
• Another positive month for the benchmark saw all sectors advance, with Financials, Communication Services and IT making the largest contributions. The largest relative sector detractors from the Fund included holdings in Financials, including Aon and S&P Global, and holdings in Communication Services, including Fox and Nintendo. Relative contributors included holdings in Real Estate, namely Zillow, and holdings in Industrials, including RB Global and TransUnion.
• RB Global was among the top individual contributors to performance in July. The company’s shares appeared to benefit from a number of analyst upgrades during the month. Franchise Partners believes it is too early to assess the success of the acquisition of IAA, however there are signs that market conditions are improving. North American used equipment market trend data indicate used equipment prices are easing, which is starting to lead to increased auction volumes. In addition, Franchise Partners’ analysis of thirdparty data suggests that IAA’s market performance has not been adversely affected by the integration.
• Aon was among the top individual detractors from performance in July. The company reported solid second quarter results, however industry-wide weakness in M&A services revenues affected Aon more than its peers due to the larger size of this segment within its business mix. Franchise Partners thinks this M&A services slowdown is due to short term, cyclical reasons rather than structural ones. The company remains on course to achieve at least mid-single-digit organic revenue growth and operating margin expansion, and double-digit free cash flow growth for the full year. Further, Aon’s core business continues to perform well, with average retention rates of approximately 95%.
• There were no initial purchases or final sales within the portfolio during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/203219126.pdfJune, 2023
• The Fund returned 5.80%, net of fees, in June 2023, compared with a return for the Benchmark of 5.59%.
• A strong month for the index saw most sectors move higher, led by Consumer Discretionary, Industrials and Materials. The largest relative sector contributors to the Fund included holdings in Communication Services, such as Fox and News Corp.; holdings in Industrials, led by RB Global; and holdings in Financials, including Aon and S&P Global. Relative detractors included holdings in Consumer Discretionary, which lagged the rise of the broader sector, and holdings in IT, namely Salesforce.
• RB Global was among the top individual contributors to performance in June. Shares in the company recovered following weakness in May driven by the market rotation towards more cyclical stocks. Franchise Partners continues to think RB Global is a high-quality company with attractive market shares that benefit from strong brands and two-sided network effects, as well as databases with extensive buyer and inventory data.
• Salesforce was among the top individual detractors from performance in June. Salesforce’s shares declined following the release of first quarter results that were in line with management’s guidance, but which did not meet the market’s elevated expectations. Given the greater than 50% share price appreciation since the start of the year which has, in part, been driven by the market’s elevated expectations, Franchise Partners took the opportunity to reduce the position size last month.
• There were no initial purchases or final sales within the portfolio during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/202407166.pdfMay, 2023
• The Fund returned -2.18%, net of fees, in May 2023, compared with a return for the Benchmark of -0.22%.
• A strong performance by the IT sector disguised an otherwise tepid month for the index, with the Energy, Consumer Staples, Financials and Health Care sectors, amongst others, detracting. For the Fund, the largest relative sector detractors were an underweight to IT, as well as holdings in Consumer Staples, particularly BAT and Philip Morris, and an overweight to the sector. Relative contributors included a lack of exposure to Energy, and holdings in Financials, namely S&P Global.
• Salesforce was among the top individual contributors to performance in May. Shares in the company appeared to benefit from the broader market rotation towards faster growing, more cyclical stocks, particularly those in the IT sector and specifically companies focused on artificial intelligence. Given the share price rise, Franchise Partners took the opportunity to reduce the position size in Salesforce towards the end of the month.
• BAT was among the top individual detractors from performance in May. Shares in the company appeared to be affected by the broader weakness in the Consumer Staples sector, as well as the unanticipated announcement that CEO Jack Bowles has been replaced by CFO Tadeu Marroco. Franchise Partners understand the market’s negative reaction to the CEO’s unexpected departure but believe Marroco is a solid appointment and do not think the company’s strategy is likely to change significantly. Bowles’ departure follows a recent large fine from the US Department of Justice for engaging in commercial activity in sanctioned countries in the AsiaPacific region in the early-to-mid-2010s. The company has subsequently overhauled its global compliance function and increased senior executive oversight to help prevent a repeat of this activity.
• There were no initial purchases or final sales within the portfolio during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/201265828.pdfDecember, 2022
The Fund returned -5.62%, net of fees, in December 2022, compared with a return for the Benchmark of -5.49%, with equity markets troubled by central bank messaging on the trajectory of interest rate rises.
All market sectors declined in December, led in particular by IT, Consumer Discretionary and Communication Services. For the Fund, the largest relative sector detractors were holdings in Real Estate, namely Zillow, and in Materials, driven by Corteva. Relative contributors included holdings in Consumer Discretionary and in Consumer Staples, which proved defensive compared to their wider sectors; in particular, Philip Morris, within Consumer Staples, was positive for the month.
Philip Morris (PMI) was among the top individual contributors to performance in December. The company announced that it has acquired more than 93% of Swedish Match and will delist the shares and consolidate the two companies’ operations. Franchise Partners continues to think the acquisition makes good financial and strategic sense and should help accelerate the transition of PMI’s legacy combustible cigarette portfolio towards next generation products. It will also give PMI a strong foothold in the US market through Swedish Match’s established sales and distribution capabilities.
Bristol-Myers Squibb was among the top individual detractors from performance in December. Weakness in the company’s share price appeared to be driven by profit taking following strong performance during 2022. Franchise Partners continues to think Bristol is one of the better-invested large cap pharmaceutical companies and that it has one of the best drug pipelines in its peer group. Franchise Partners believes the pipeline is underappreciated by the market and should allow Bristol to successfully navigate its sizable but known upcoming patent expirations.
There were no initial purchases or final sales within the portfolio during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/195244793.pdfNovember, 2022
The Fund returned 3.76%, net of fees, in November 2022, compared with a return for the Benchmark of 2.02%, with markets maintaining their positive trajectory despite ongoing inflation and interest rate uncertainty.
Cyclical sectors, led by Materials, Industrials and Financials, drove the index higher in November. For the Fund, the largest relative sector contributors were holdings in Consumer Discretionary, such as Richemont and eBay, and in Communication Services, such as News Corporation and Fox. Relative detractors included holdings in Materials, namely Corteva, and an underweight to Industrials.
Richemont was among the top individual contributors to performance in November. The company released strong half year results, with underlying sales growing by 16% driven by the company’s high margin jewellery brands, Cartier and Van Cleef & Arpels. This revenue growth was well balanced geographically, with US and European revenue growth more than offsetting China, which remains affected by lockdowns. Franchise Partners continues to believe that Richemont is well placed in the attractive luxury jewellery segment. Cartier and Van Cleef & Arpels are among the strongest brands in the segment and have substantial pricing power.
Salesforce was among the top individual detractors from performance in November. Shares in the company were likely affected by broader macroeconomic concerns that are starting to impact other leading software companies. Broker surveys conducted in November also showed signs of weakness in software customer demand. The company further announced the surprise departure of co-CEO Bret Taylor. However, founder and fellow co-CEO Marc Benioff has navigated multiple executive transitions over the past two decades. Management has demonstrated strong cost discipline which led to margin expansion in the quarter.
There were no initial purchases or final sales within the portfolio during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/193662059.pdfOctober, 2022
• The Fund returned 7.31%, net of fees, in October 2022, compared with a return for the Benchmark of 7.81%, with the MSCI World Ex Australia Index recording its strongest monthly bounce since May 2013.
• All market sectors moved higher in October, with IT, Health Care and Financials the largest contributors to index returns, and Energy a notably strong performer. For the Fund, the largest relative sector contributors were holdings in Consumer Discretionary, such as Booking Holdings and eBay, and in IT, such as Oracle and Salesforce. Relative detractors included a lack of exposure to Energy, and holdings in Industrials, which lagged the rise of the broader sector, as well as an underweight to the sector.
• Oracle was among the top individual contributors to performance in October. The company issued long-term guidance at its annual analyst day that significantly exceeded market expectations for both revenues and margins. This was the first long-term guidance that Oracle had released in over a decade and reflects the strong progress made in transitioning both its application and database business to the cloud.
• Fox was among the top individual detractors from performance in October. Shares in the company declined following the announcement that its largest shareholder, the Murdoch Family Trust, is exploring a re-combination with News Corp. As the larger company, it appears the market is concerned that Fox would pay a premium to acquire News Corp. Franchise Partners are shareholders of both companies and think each of their share prices are materially undervalued. While Franchise Partners think there are operational benefits from a combination, the investment team believe it would be in the best interests of both companies for News Corp to have first completed the sale or spin-off of its valuable real estate portal assets. Franchise Partners will continue to actively engage with both companies on the potential equity combination.
• There were no initial purchases or final sales within the portfolio during the month
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/192500164.pdfSeptember, 2022
• The Fund returned -3.07%, net of fees, in September 2022, compared with a return for the Benchmark of -3.23%, with ongoing inflation concerns and higher interest rates again resulting in a negative month for global equities.
• Health Care was the sole positive market sector in September, with IT, Industrials and Communication Services the largest detractors from index returns. For the Fund, the largest relative sector contributors were holdings in Health Care, such as Bristol-Myers Squibb and Johnson & Johnson, and in Communication Services, namely Nintendo. Relative detractors included holdings in Consumer Discretionary, including eBay and Richemont, and in Consumer Staples, such as Philip Morris and Reckitt Benckiser.
• Bristol-Myers Squibb was among the top individual contributors to performance in September. The company’s key pipeline drug Sotyktu, an oral treatment for plaque psoriasis, was approved by the US Food and Drug Administration. It was approved without the requirement for additional warnings on the label that some analysts expected and that would restrict physician take up. Franchise Partners think Bristol is now well placed to achieve its Sotyktu sales guidance of over $4bn in 2029 due to broader usage and higherthan-expected pricing.
• TransUnion was among the top individual detractors from performance in September. The share price weakness appeared to be driven by the market’s rotation away from cyclical and technology stocks. While mindful of these near-term headwinds, Franchise Partners continues to think TransUnion is a high-quality company.
• During the month, Franchise Partners completed the final sale of Haleon. Haleon is the world’s largest consumer healthcare company, with shares received by the Fund in July following its spin-off from GlaxoSmithKline. It has leadership positions in a number of attractive markets, including therapeutic oral care (Sensodyne), vitamins (Centrum), pain relief (Panadol, Advil and Voltaren) and respiratory health (Flonase and Otrivin). While the investment team think the company can steadily grow revenues and improve margins, they did not believe Haleon represented an attractive risk/reward proposition given its valuation.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/191770704.pdfJuly, 2022
The Fund returned 3.28% in July 2022, compared with a return for the Benchmark of 6.40%, with global equities posting their first positive monthly return since 2021 despite ongoing inflation and interest rate concerns.
All market sectors moved higher in July, led by IT, Consumer Discretionary and Industrials. For the Fund, the largest relative sector detractors were holdings in Consumer Staples, such as BAT and Philip Morris, and an overweight to the sector, and holdings in Health Care, including Bristol-Myers Squibb and GlaxoSmithKline. Relative contributors included holdings in Financials, such as S&P Global, Aon, and Intercontinental Exchange.
eBay was among the top individual contributors to performance in July. Shares in the company benefited from the broader market rotation away from more defensive stocks during the month, partly reversing their significant share price falls during the first half of the year.
BAT was among the top individual detractors from performance in July. This weakness appeared to be driven by the market’s rotation away from more defensive stocks and from those that had outperformed during the substantial market decline in the first half of the year.
During the month, the Fund received shares in Haleon, the former consumer healthcare division of GlaxoSmithKline, following its spinoff. Haleon is the largest consumer healthcare company in the world. It has leadership positions in a number of attractive markets, including therapeutic oral care (Sensodyne), vitamins (Centrum), pain relief (Panadol, Advil and Voltaren) and respiratory health (Flonase and Otrivin). Franchise Partners estimates that these high gross margin categories should grow by around 4-6% per year, and also believes the company can steadily improve margins though innovation and operating leverage.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/189606049.pdfJune, 2022
The Fund returned -2.45% in June 2022, compared with a return for the Benchmark of -4.64%, with market attention centred once again on the potential impacts of rising inflation and the monetary policy response.
• Health Care and Consumer Staples were the lone positive sectors for the market in June, with the Energy sector yielding part of its strong year-to-date return. For the Fund, the largest relative sector contributors were holdings in IT, such as Salesforce, and in Financials, including Aon and S&P Global, as well as an overweight to Consumer Staples. Relative detractors included holdings in Real Estate, namely Zillow Group, and in Consumer Discretionary, including Booking Holdings and eBay.
• Bristol-Myers Squibb was among the top individual contributors to performance in June. The company announced a number of positive data releases, including impressive three- and five-year follow up data for cancer treatments based on its key immuno-oncology drug, Opdivo. Bristol faces sizable and well-understood patent expiration headwinds, but Franchise Partners continue to think that the continued progression of its pipeline of new drugs leaves it well placed to offset these patent expirations.
• Zillow Group was among the top individual detractors from performance in June. The share price weakness was driven by market concerns that the sharp rise in US mortgage rates will weigh on US housing transactions and prices. While near-term cyclical pressures are acute, Franchise Partners continue to believe that Zillow has a substantial opportunity to monetise its dominant position in US property search. The company is investing in new product rollouts and improvements across home viewing, mortgage, and seller services.
• During the month, Franchise Partners completed the final sale of TGS, a provider of seismic survey data to the oil and gas industry. The improvement in the oil and gas market since the start of 2022 has led to a significant increase in demand for TGS’s data products and an increase in the company’s share price. Given the risks the company faces from structurally lower levels of exploration investments moving forward, the position was sold.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/188914002.pdfMay, 2022
The Fund returned -1.92% in May 2022, compared with a return for the Benchmark of -0.83%, with equity markets steadying somewhat despite the ongoing headwinds of rising inflation, tighter monetary policy and surging energy prices.
• The IT and Consumer Discretionary sectors weighed on market performance in May, while Energy and Financials moved higher. The Fund’s largest relative sector detractors were holdings in Financials, including ICE, Aon and S&P Global, and an underweight to Energy. Relative contributors included holdings in Consumer Staples, such as Philip Morris and BAT, and in Materials, namely Corteva. • Electronic Arts was among the top individual contributors to performance in May. Shares in the global video game developer rose following strong fourth quarter results and press reports of discussions about a potential sale or merger. Player trends remain robust, particularly for its key sports franchises. While the press reports of sale discussions over the last few years with Apple, Amazon, Disney and NBC Universal are unverified, they do highlight EA’s strategic importance as technology, traditional media, and video games increasingly converge.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/187689995.pdfApril, 2022
• The Fund returned -0.35% in April 2022, compared with a return for the Benchmark of -3.17%, as the prospect of tighter monetary policy in the face of rising inflation, coupled with the ongoing conflict in Ukraine drove equity markets down during the month.
• The IT and Consumer Discretionary sectors led the market lower in April, while Consumer Staples was a notable positive contributor to index performance. The Fund’s largest relative sector detractor was holdings in Real Estate, specifically Zillow Group. This result was offset by allocations to Health Care, such as Bristol-Myers and Novartis, and an overweight to Consumer Staples.
• Bristol-Myers was among the top individual contributors to performance in April. The company reported first quarter revenues slightly ahead of market expectations, growing 7% in constant currency. Bristol also received approval for Camzyos, an important first-in-class medicine to treat symptomatic obstructive hypertrophic cardiomyopathy. The company forecasts over $4 billion in peak sales for the drug and Franchise Partners believe its successful commercialisation will be important in helping offset Bristol’s upcoming patent expires.
• Zillow Group was among the top individual detractors from performance in April. The company’s share price weakness was driven by market concerns that higher US mortgage rates will weigh on US housing transaction and prices. Franchise Partners are mindful of this risk, however, believe that in the long-term it is outweighed by the structural opportunity to close the gap between the company’s 70-80% share of US property search and its approximate 10% share of the property advertising market. • There were no initial purchases or final sales within the portfolio during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/186801989.pdfMarch, 2022
• The Fund returned -2.08% in March 2022, compared with a return for the Benchmark of -0.89%, as equity markets recovered from steeper intra-month losses on signs of economic strength, and despite the ongoing conflict between Ukraine and Russia and continuing supply chain issues.
• Financials and Consumer Staples led the market lower in March, while Energy and Health Care were notable positive contributors to index performance. The Fund's largest relative detractors were holdings in Consumer Staples, led by Reckitt Benckiser, Philip Morris and BAT, and in Real Estate, namely Zillow Group. These results were partially offset by holdings in Financials, including Aon and S&P Global, and overweight to Health Care.
• Aon was among the top individual contributors to performance in March. Franchise Partners think the company has the opportunity to materially increase margins over the long term as it evolves into an information services company and focuses on its "One Aon" business operating model. Franchise Partners believes Aon's high level of investment in data and analytics is a key differentiator and means it is well-positioned to outperform its peers.
• Zillow Group was among the top individual detractors of performance in March. The company's share price weakness was likely in part due to rising US mortgage rates. While this may have a short-term impact on housing transactions, Franchise Partners think that it will be more than offset by the long-term structural trend of digitization in the US property market. Franchise Partners believe that Zillow has the opportunity to significantly increase its revenues and margins, with its share of the US property advertising market in the low teens, substantially below its roughly 80% share of consumer property search.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/185945012.pdfFebruary, 2022
The Fund returned -2.18% in February 2022, compared with a return for the Benchmark of -5.52%, as equity markets confronted elevated economic uncertainty driven by the conflict between Russia and Ukraine.
• Energy was the sole market sector to advance in February, with IT and Consumer Discretionary weighing most on index performance. For the Fund, the largest relative contributors were holdings in Communication Services, including Nintendo and Informa, as well as holdings in Consumer Staples, such as Reckitt Benckiser, and an overweight to the sector. The largest detractors on a relative basis were holdings in Consumer Discretionary, such as Booking Holdings and Richemont, and an underweight to the Energy sector. • Zillow was among the top individual contributors to performance in February. The company reported full year results that were slightly ahead of expectations for the core portal business, as well as continued progress in exiting its home buying operations. Zillow also announced ambitious sales and EBITDA margin targets for 2025 that could potentially deliver significant upside for shareholders if achieved.
• Booking Holdings was among the top individual detractors from performance in February. Shares in Booking declined following management guidance that 2022 EBITDA margins will be lower than anticipated due to increased marketing investment. Franchise Partners thinks it makes sense to increase investment as travel re-opening accelerates and it is an opportunity to meaningfully grow market share from a position of commercial and financial strength. Booking also reported fourth quarter results slightly ahead of expectations, and the company has resumed its substantial share repurchase activity.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/185019002.pdfJanuary, 2022
The Fund returned 1.48% in January 2022, compared with a return for the Benchmark of -2.20%, with investor unease around inflation pressures and higher interest rates leading to a sector rotation and negative overall returns for equity markets.
• Energy and Financials were the strongest market sectors in January, benefitting from a rotation out of traditional ‘growth’ sectors such as IT, Consumer Discretionary and Health Care. For the Fund, the largest relative contributors were holdings in Communication Services, including Fox, Nintendo and Informa, as well as holdings in Consumer Staples, such as BAT and Philip Morris, and an overweight to the sector. The largest detractors on a relative basis were holdings in Financials, such as S&P Global and ICE. • BAT was among the top individual contributors to performance in January. Shares in BAT appeared to benefit from the market’s rotation from growth – and particularly technology stocks – towards value during the month. Franchise Partners continues to think the company trades at an attractive valuation, and that this helps to demonstrate the importance of the Fund’s valuation discipline in more challenging market conditions.
• Zillow was among the top individual detractors from performance in January. Shares in the company were affected by the general weakness in higher growth, NASDAQ-listed technology stocks during the month. Franchise Partners continues to believe that Zillow is a strong franchise, underpinned by the Zillow.com brand, proprietary data, and agent switching costs, and that its leading consumer position should translate into strong long-term compounding. • There were no initial purchases or final sales within the portfolio during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/183937088.pdfDecember, 2021
The Fund returned 4.45% in December 2021, compared with a return for the Benchmark of 1.68%, with the positive result rounding out a strong calendar year for equity markets, despite ongoing unease around inflation pressures and the spread of the Omicron COVID-19 variant.
• Defensive sectors including Consumer Staples and Utilities saw the largest gains within the index in December. For the Fund, the largest relative contributors were holdings in Health Care, including Bristol-Myers Squibb and Novartis, as well as overweight positioning in Consumer Staples and holdings in the sector, such as Philip Morris and British American Tobacco. The largest detractor on a relative basis was the Fund’s lack of exposure to the Industrials sectors.
• Bristol-Myers Squibb was among the top individual contributors to performance in December. The company announced a new $15 billion share repurchase program as well as a 10% increase in the 2022 dividend. These announcements demonstrate the board’s confidence in Bristol’s cash generation. The company faces sizable but well understood patent headwinds over the next decade. However, Franchise Partners think the market underestimates the ability of Bristol’s existing drug pipeline to offset these pressures, as well as the company’s financial strength to invest in R&D to develop future drugs.
• Oracle was among the top individual detractors from performance in December. Despite reporting a strong set of quarterly results, the market responded negatively to the subsequent announcement of Oracle’s $28 billion acquisition of Cerner, a leading provider of digital information systems used within hospitals and health systems. This appeared to be due to concerns about Oracle’s balance sheet, the fact that Oracle’s share buyback program will be paused, and the limited communication from management about the transaction. While Franchise Partners are still working through the details, the team’s overall assessment is more positive. Cerner has been a long-term acquisition target for Oracle. Its healthcare vertical enterprise resource planning (“ERP”) software sits neatly alongside Oracle’s broader ERP software. Franchise Partners think the price paid is reasonable and that the acquisition should increase Oracle’s utilisation and scale in the infrastructure-as-a-service category
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/182478156.pdfNovember, 2021
The Fund returned 0.59% in November 2021, compared with a return for the Benchmark of 3.70%, with equity markets unsettled by the emergence of the new Omicron COVID-19 variant.
• Index gains were driven by the Information Technology and Consumer Discretionary sectors in November. For the Fund, the largest relative detractors were the portfolio’s holdings in Information Technology, which lagged the rise of the broader sector, and underweight positioning, as well as holdings in Communication Services, namely Fox and Informa, and an overweight to the sector. The largest contributors on a relative basis were the Fund’s holdings in Materials, driven by the Fund’s sole Materials holding Corteva. • Richemont was among the top individual contributors to performance in November. The company reported very strong second quarter results, driven by the continued strength of its jewellery brands, with sales increasing 43% compared to 2019. Revenue at its Specialist Watchmakers business also surpassed 2019 levels. This strong revenue growth, along with the transition to higher margin direct retail and online sales channels, drove significant margin improvement and more than doubled free cash flow.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/181814438.pdfOctober, 2021
The Fund returned 0.60% in October 2021, compared with a return for the Benchmark of 1.65%, with global markets rising despite ongoing concerns around higher inflation and a reduction in monetary policy support.
• Most market sectors were higher in October, with Consumer Discretionary and Energy recording the largest gains. For the Fund, the largest relative detractors from performance were an overweight to Communication Services, and holdings in the sector, including Nintendo, News Corporation and Fox, and holdings in Health Care, such as Bristol-Myers Squibb and Novartis. The largest contributors on a relative basis were the Fund’s holdings in Financials, led by Intercontinental Exchange (ICE) and Aon.
• ICE was among the top individual contributors to performance in October. The company released strong quarterly results, with energy revenues growing over 30%, driven by double-digit growth in both energy derivative volumes and rate per contract. Energy revenues are increasingly positioned towards decarbonisation through carbon trading and lower carbon fuels like liquid natural gas. In addition, ICE’s mortgage segment grew 7%, well-ahead of consensus expectations, despite the headwind to mortgage transaction volumes from higher long-term yields.
• Nintendo was among the top individual detractors from performance in October. The company’s shares have declined since Nintendo announced in early July that it will release a new Switch model featuring an enhanced OLED display, rather than the next generation of the Switch console, the Switch Pro. Franchise Partners are not concerned by the delay in the launch of the Switch Pro, with the current Switch and Switch Lite consoles continuing to sell well and soon to become Nintendo’s bestselling format of all time. Franchise Partners think the delay should further extend the life cycle of the current consoles.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/181053905.pdfSeptember, 2021
The Fund returned -2.45% in September 2021, compared with a return for the Benchmark of -3.05%, with global equity markets impacted by investor concerns around inflation and rising yields.
• The IT and Health Care sectors led the market lower in September, with a resurgent Energy sector the sole contributor to market returns. For the Fund, the largest relative contributors to performance were holdings in Communication Services, including Fox, News Corporation and Nintendo. The largest relative detractors included holdings in Health Care, namely Novartis and Bristol-Myers Squibb, and an underweight to Energy.
• Fox was among the top individual contributors to performance in September. An upbeat investor presentation by CEO Lachlan Murdoch highlighted the strength of the advertising market and Murdoch’s optimism for affiliate fee renewals next year. He also reiterated his confidence that the company can meet its target for a US$1 billion increase in fees earned from the re-transmission of Fox broadcast content on pay TV systems. Finally, Murdoch emphasised the value of the company’s sports betting assets and the strength of early season NFL ratings. Strong NFL ratings are especially encouraging given Fox signed an 11-year rights extension in March 2021.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/179968112.pdfJuly, 2021
The Fund returned 3.01% in July 2021, compared with a return for the Benchmark of 4.03%, as the growth-oriented technology and health care sectors saw further gains following on from the prior month.
• All market sectors moved higher in July with the exception of Energy. For the Fund, the largest relative detractors were holdings in Communication Services, including Nintendo, and in Consumer Staples, notably Reckitt Benckiser. The largest relative contributors were holdings in Financials, including Aon and S&P Global, and holdings in IT, including Oracle and Microsoft, though the latter was partially offset by the Fund’s underweight positioning to IT.
• Alphabet was among the top individual contributors to performance in July. The company reported another strong set of quarterly results with impressive growth in each of its core business segments. Margins continued to expand significantly, although management flagged that this will partially reverse over the next few quarters as they continue to invest in headcount to drive future revenue growth. Franchise Partners continue to think Google Search, YouTube and Google Cloud are extremely high-quality businesses.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/175738517.pdfJune, 2021
The Fund returned 3.24% in June 2021, compared with a return for the Benchmark of 4.71%, as falling concerns over higher inflation drove a strong rebound in the growth-oriented technology and healthcare sectors.
• June saw a reversal of the trends of the previous month, with a strong rise for the IT sector and falls for Financials and Materials. The largest relative contributors to the Fund’s performance were holdings in Financials, including S&P Global, and an underweight to the sector, as well as an underweight to Industrials. The largest relative detractors were holdings in Communication Services, including Informa and Nintendo.
• eBay was among the top individual contributors to performance in June. The company completed the sale of its Classifieds business to Adevinta, retaining a 44% stake in the combined company and receiving $2 billion in cash net of tax. These proceeds will be used to increase the 2021 share buyback program. By the end of this year, Franchise Partners estimates the company will have bought back and cancelled almost half of its outstanding shares since the spin-off of PayPal in 2015. eBay also agreed to sell its South Korean marketplace to Emart, retaining a 20% stake and receiving approximately $3 billion in gross cash proceeds. Franchise Partners believes this is a sensible strategic move as the Korean business is primarily a first-party eCommerce business, rather than a third-party marketplace, with different technology infrastructure to its other major markets.
• Informa was among the top individual detractors from performance in June. The events company released a positive trading update at the start of June, but its shares weakened later in the month on concerns that COVID-19 variants will slow the return of in-person events and exhibitions. Despite the near-term challenges, there are some encouraging signs of potential future recovery. In mainland China, business is recovering well. For example, Informa’s China Beauty Expo recently attracted more than 200,000 exhibitors in Shanghai. Restrictions are also being slowly loosened in the US, a key market for Informa.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/174342118.pdfMay, 2021
The Fund returned 1.69% in May 2021, compared with a return for the Benchmark of 1.19%, with investor enthusiasm around a strong global macroeconomic backdrop driving equity markets higher.
• Investor optimism around economic conditions drove cyclical GICS sectors, including Energy, Financials and Materials, higher in May. Falls for pandemic winners Apple, Amazon and Tesla in particular, saw negative contributions from the Information Technology and Consumer Discretionary sectors. For the Fund, the largest relative contributors to performance were holdings in Consumer Discretionary, including Richemont and eBay, as well as holdings in Communication Services, such as Nintendo and News Corp. The largest relative detractor was the Fund’s sole holding in the Materials sector, Corteva.
• Richemont was among the top individual contributors to performance in May. The company reported strong fourth quarter results and robust near-term trading volumes. Fourth quarter sales increased 30% on an underlying basis, driven by significant strength in key jewellery brands Cartier and Van Cleef & Arpels, which are continuing to outperform in the structurally growing branded jewellery category. In addition, there are early signs that Richemont’s weaker performing divisions, including its specialist watchmakers and its YOOX NET-A-PORTER online distribution business, are starting to benefit from increased management attention. Management expects profitability in both divisions to improve over the next couple of years
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/173009918.pdfApril, 2021
The Fund returned 2.05% in April 2021, compared with a return for the Benchmark of 3.18%, as equity markets posted another strong result driven by investor optimism around a stimulus-driven economic recovery.
• All GICS sectors, with the exception of Energy, continued their positive rise in April; Information Technology, Financials and Communication Services were among the leading contributors. For the Fund, the largest relative detractors from performance were holdings in Health Care, including Bristol-Myers Squibb and Novartis, as well as holdings in Consumer Staples, namely BAT, and an overweight to the sector. The largest relative contributors were holdings in Financials, such as S&P Global and Aon, as well as an underweight to Industrials.
• Alphabet was among the top individual contributors to performance in April. The company reported an impressive set of quarterly results, with accelerating revenue growth and a big increase in operating margins due to strong cost control. Franchise Partners think the company can continue to expand margins over the next few years as its Google Cloud Infrastructure segment, which competes with Amazon’s AWS and is still loss-making, gains scale and becomes profitable
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/171427527.pdfMarch, 2021
The Fund returned 5.95% in March 2021, compared with a return for the Benchmark of 5.09%, as investor optimism around the level of fiscal and monetary stimulus drove global equities higher across the month. • All GICS sectors moved higher in March, led by Utilities and Consumer Staples, though the Information Technology and Communication Services sectors recorded smaller gains. For the Fund, the largest relative contributors to performance were holdings in Consumer Staples, such as BAT and Philip Morris, as well as an overweight to the sector, and holdings in Information Technology, including Oracle. The largest relative detractors were holdings in Financials, namely S&P Global, as well as an underweight to Industrials.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/170122514.pdfFebruary, 2021
The Fund returned 2.59% in February 2021, compared with a return for the Benchmark of 1.64%, with a strong cyclical sector rebound driving global equities higher across the month.
• Cyclical sectors, including Energy, Communication Services and Financials, led the market higher in February, with investor confidence improving due to ongoing global stimulus measures and the vaccine rollout. More defensive sectors such as Utilities and Consumer Staples detracted. Within this environment, the largest relative contributors to the Fund’s performance were holdings in Communication Services, such as News Corp and Informa, as well as an overweight to the sector, and holdings in Consumer Discretionary, including Booking Holdings. The largest relative detractor was an overweight to Consumer Staples, partially offset by positive performance in some holdings, including Philip Morris and Altria.
• News Corp was among the top individual contributors to performance in February. The company announced strong quarterly results, with group EBITDA increasing 40% year-on-year. Franchise Partners believe their thesis that News Corp is becoming a higher margin and more digital business is playing out. In particular, EBITDA at Dow Jones grew 43%, while organic revenues at realtor.com increased 28%. These two businesses are starting to gain the market’s attention and are attracting comparisons with highly rated peers.
• Nestlé was among the top individual detractors from performance in February. The company reported solid results with underlying sales growing 3.6% and underlying operating margins reaching 17.7% in 2020. However, management expects only modest margin improvement in 2021. The company has improved its portfolio mix and taken steps to address the weak performance of its infant nutrition business in China. This should lead to continued sales growth.
• There were no initial purchases or final sales within the portfolio during the month.
• Franchise Partners’ investment approach offers several features relevant to the current market environment; in particular, the defining characteristic of companies held by the Fund is their possession of a dominant intangible asset, such as a brand, patent, or intellectual property. Such an asset can place a company in a stronger market position and allow it to weather periods of economic uncertainty."
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/167980609.pdfJanuary, 2021
The Fund returned -0.89% in January 2021, compared with a return for the Benchmark of -0.45%, with global equities recording a subdued start to the year against a backdrop of economic uncertainty.
• Most sectors moved lower in January, with the notable exceptions of Energy, as oil prices climbed across the month, and Health Care. The largest detractors from relative performance for the Fund were an overweight to Consumer Staples and holdings in Information Technology, such as Oracle and Accenture. The largest contributors on a relative basis were holdings in Communication Services, including Fox and News Corporation, and the Fund’s sole holding in the Materials sector, Corteva.
• Fox was among the top individual contributors to performance in January. The company benefitted from distributor results that indicate that subscriber cancellations in the fourth quarter of 2020 may not be as weak as expected, as well as stronger than anticipated advertising performance from peer NBCUniversal.
• Nintendo was among the top individual detractors from performance in January. There was no material company specific news during the month, and it appears the market was taking profits given the stock’s strong 2020 return. Franchise Partners continue to see potential for an extended Switch console lifecycle, with the launch of a number of new software titles scheduled for 2021.
• During the month, Franchise Partners completed the final sale of IBM. Although the company’s valuation seems optically attractive, an increasing lack of confidence in cloud development platform-as-a-service OpenShift prevailing as a key long-term player in the container market undermined the investment team’s faith in the vitality of the Red Hat and IBM franchise.
• Franchise Partners’ investment approach offers several features relevant to the current market environment; in particular, the defining characteristic of companies held by the Fund is their possession of a dominant intangible asset, such as a brand, patent, or intellectual property. Such an asset can place a company in a stronger market position and allow it to weather periods of economic uncertainty
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/165060941-1.pdfDecember, 2020
The Fund returned 0.59% in December 2020, compared with a return for the Benchmark of -0.50%, with a rising Australian dollar offsetting what proved to be another strong month for global equities.
• There was dispersion in sector returns in December, with several cyclical sectors including Consumer Discretionary, Financials, and Materials rising, while Utilities, Industrials and Consumer Staples moved lower. For the Fund, the largest contributors to relative performance were holdings in Consumer Staples, including Philip Morris and Imperial Brands, and in Communication Services, such as Nintendo. The largest relative detractors were holdings in Financials, including S&P Global, and the Fund’s sole holding in the Materials sector, Corteva.
• Nintendo was among the top individual contributors to performance in December. Retail sales data for the Switch and Switch Lite consoles demonstrated their continued market leadership and strong momentum through the key holiday selling period. This was despite the launch of rival games consoles by Sony (PlayStation 5) and Microsoft (Xbox Series X and S) in November. Anticipation is also growing regarding the launch of the next generation Switch console in 2021, along with a number of accompanying software titles.
• Western Union was among the top individual detractors from performance in December. There was no material company specific news during the month, however Western Union’s large in-person money transfer business has been hurt by COVID-19 related disruption. By contrast, the company’s digital money transfer services are now a ~$1bn annual run rate revenue business and growing strongly. Overall company revenues should recover in 2021 if economic activity improves.
• There were no initial purchases or final sales within the portfolio during the month.
• Franchise Partners’ investment approach offers several features relevant to the current market environment; in particular, the defining characteristic of companies held by the Fund is their possession of a dominant intangible asset, such as a brand, patent, or intellectual property. Such an asset can place a company in a stronger market position and allow it to weather periods of economic uncertainty.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/163537502.pdfNovember, 2020
The Fund returned 6.56% in November 2020, compared with a return for the Benchmark of 7.43%, with growing optimism over the deployment of a COVID-19 vaccine driving developed markets to their strongest monthly return since July 2013.
• Vaccine optimism resulted in all market sectors moving higher in November; cyclical sectors such as Energy, Financials, and Consumer Discretionary rose most, while gains were more muted in the defensive Utilities and Consumer Staples sectors. For the Fund, the largest detractors from relative performance were overweight positioning in Consumer Staples and holdings in the sector, including Nestlé. The largest relative contributors were holdings in Consumer Discretionary, including Richemont and Booking Holdings, and Communication Services, such as News Corp.
• News Corp was among the top individual contributors to performance in November. The company reported very strong quarterly results, with solid operating performance across its three most valuable assets: Dow Jones, digital real estate, and HarperCollins. The good results from the company’s US real estate portal business, realtor.com, also helped highlight an important source of significant hidden value to investors. Franchise Partners’ thesis that News will become an increasingly digital, higher margin and ultimately more valuable company appears to be playing out.
• Nestlé was among the top individual detractors from performance in November. While there was no material stock specific news for the company during the month, Nestlé, which has been resilient year-to-date, lagged the broader market rally in November. • There were no initial purchases or final sales within the portfolio during the month.
• Franchise Partners’ investment approach offers several features relevant to the current market environment; in particular, the defining characteristic of companies held by the Fund is their possession of a dominant intangible asset, such as a brand, patent, or intellectual property. Such an asset can place a company in a stronger market position and allow it to weather periods of economic uncertainty
File:October, 2020
The Fund returned -3.23% in October 2020, compared with a return for the Benchmark of -1.13%, with key European markets moving lower as COVID-19 cases in the region soared.
• Most market sectors saw declines in October, including Energy, following a further fall in oil prices, and Information Technology; Utilities and Communication Services moved higher. For the Fund, the largest detractors from relative performance were holdings in Consumer Staples, including British American Tobacco (“BAT”), as well as holdings in Financials; these were partially offset by Materials, owing to the Fund’s sole sector holding Corteva.
• Corteva, a global seed and agrochemical company, was among the top individual contributors to performance in October. The market appears to have reacted positively to the news an activist investor has taken a position in the company, highlighting the margin opportunity available to Corteva. Franchise Partners continue to think the company can significantly improve operating margins, primarily through development and commercialisation of its in-house seed traits pipeline.
• BAT was among the top individual detractors from performance in October. There was no material company specific news, and while US cigarette volumes, as measured by retail scanner data, have deteriorated over the past couple of months, the underperformance of BAT’s shares relative to Altria is difficult to explain. Franchise Partners continues to believe BAT is well-positioned to deliver strong revenue growth over the next few years.
• During the month, Franchise Partners completed the initial purchase of CME Group, one of the leading vertically integrated global financial exchanges and clearing houses. The company holds strong market shares in interest rate, energy, foreign exchange, commodities and metals futures and options markets. Most of these exchange categories are near-monopoly or duopoly market structures.
• Franchise Partners’ investment approach offers several features relevant to the current market environment; in particular, the defining characteristic of companies held by the Fund is their possession of a dominant intangible asset, such as a brand, patent, or intellectual property. Such an asset can place a company in a stronger market position and allow it to weather periods of economic uncertainty.
File: https://commentary.quantreports.net/wp-content/uploads/2020/11/160483244.pdfticker: MAQ0631AU
commentary_block: Array
factsheet_url:
https://investmentcentre.moneymanagement.com.au/factsheets/mi/lsu6/macquarie-ifp-global-franchise
Providers own factsheet
https://investmentcentre.moneymanagement.com.au/factsheets/MI/lsu7/ifp-global-franchise-hedged
release_schedule: Monthly
fund_features:
The IFP Global Franchise Fund offers exposure to a concentrated portfolio of some of the world’s leading global companies. Each of these companies possess a dominant intangible asset, such as brand, patent, intellectual property or licence, which gives them a competitive advantage in their market.
- Provides exposure to a concentrated portfolio of global equities by investing in the IFP Global Franchise Fund (Underlying Fund).
- Applying bottom up fundamental research and seeking high quality companies at compelling valuations.
- Typically invests in consumer goods (including tobacco), pharmaceuticals, media and publishing, broadcasting and information services.
- Does not invest in capital intensive industries such as telecommunications and utilities.
manager_contact_details: Array
asset_class: Foreign Equity
asset_category: Currency Hedged
peer_benchmark: Foreign Equity - Currency Hedged Index
broad_market_index: Developed -World Index
structure: Managed Fund