September, 2023
International equity markets, as measured by the MSCI AC World Accumulation Index ex-Australia, declined by 0.4% in the September quarter (all returns are in A$ unless stated otherwise). Equity markets declined 2.8% in local currency terms, while changes in currency values added 2.4% to the A$ return.
As shown in the table on the previous page, the Aoris International Fund (Class A – Unhedged) declined by 3.4% for the quarter, underperforming its benchmark by 3.0%. The Aoris International Fund (Class C – Hedged) declined by 5.6% for the three-month period, underperforming its benchmark by 2.9%.
A feature of financial markets over the quarter was the rise in long-term government bond rates in many countries, to the highest level in more than 15 years. This will increase debt servicing costs for governments, households, and businesses. In this environment we believe it’s particularly important for investors to own businesses with strong balance sheets. For the Aoris portfolio, the average ratio of net debt to earnings before interest, tax and depreciation is 0.5x, which compares to an average of 2.2x for the 500 largest US companies. No company in the Aoris portfolio has a debt ratio above 3x.
File: https://commentary.quantreports.net/wp-content/uploads/2022/03/65359d507b131cc5669d1a29_Aoris_Quarterly-Sep-2023.pdfJune, 2023
International equity markets, as measured by the MSCI AC World Accumulation Index ex-Australia, rose by 6.9% in the June quarter (all returns are in A$ unless stated otherwise). Equity markets appreciated by 6.4% in local currency terms, while changes in currency values added 0.5% to the A$ return.
As shown in the table on the previous page, the Aoris International Fund (Class A – Unhedged) returned 7.9% for the quarter, outperforming its benchmark by 1.0%. The Aoris International Fund (Class C – Hedged) returned 6.4% for the three-month period, matching the performance of its benchmark. Three topics have received considerable attention by market commentators over the last quarter or so:
• Inflation;
• Artificial intelligence (AI); and
• The narrowness of equity market returns.
March, 2023
The international equity market, as measured by the MSCI AC World Accumulation Index ex-Australia, rose by 8.7% in the March quarter (all returns are in A$ unless stated otherwise). Equity markets appreciated by 6.7% in local currency terms, while changes in currency values added 2.0% to the A$ return.
As shown in the table on the previous page, the Aoris International Fund (Class A – Unhedged) returned 12.8% for the quarter, outperforming its benchmark by 4.1%. The Aoris International Fund (Class C – Hedged) returned 9.9% for the three-month period, exceeding its benchmark by 3.3%. We now have a five-year investment track record. Over that period, Class A of our Fund returned 14.7% p.a., exceeding both its benchmark and our long-term objective of 8–12% p.a.
There was a wide dispersion of performance by market sector during the quarter, with a 23.8% difference between the best and worst sector. Information Technology led the way with a gain of 21.9%, followed by Communication Services at 18.6%. At the other end, Energy declined by 1.9% and Financials and Health Care declined by 0.2% and 0.5% respectively.
File: https://commentary.quantreports.net/wp-content/uploads/2022/03/643f7fb48ba2137999ecd4e0_Aoris_Quarterly-Report-Mar-2023_r1v2.pdfDecember, 2022
The international equity market, as measured by the MSCI AC World Accumulation Index ex-Australia, rose by 4.0% in the December quarter (all returns are in A$ unless stated otherwise). Equity markets rose by 6.8% in local currency terms, while changes in currency values detracted 2.8% from the A$ return. For the year 2022, the market declined by 12.7%, inclusive of a 6.0% positive contribution from currency changes.
As shown in the table on the previous page, the Aoris International Fund (Class A – Unhedged) returned 6.1% for the quarter and –12.2% for the year, outperforming our benchmark by 2.2% and 0.6% over these periods respectively. The Aoris International Fund (Class C – Hedged) returned 9.5% for the quarter and –18.0% for the year, exceeding its benchmark by 2.5% for the three months and matching it over the year.
In 2022, as in 2021, the Aoris portfolio owned no Energy companies, nor did we own any companies from the second- or third-best performing sectors, which were Utilities and Health Care respectively.
What I believe helped our performance was our ownership of durable, consistently profitable and competitively winning businesses with conservative balance sheets at reasonable valuations. The importance of these attributes is discussed at length in the accompanying Annual Letter to Investors.
In many ways, 2022 was a transition year. Through the year, supply chain challenges progressively eased, while challenges associated with inflation intensified for many businesses. Some businesses went from having a shortage of product to sell, to an excess; other businesses went from having too few employees, to too many. Through all this, the strongest businesses moved forward.
No doubt 2023 will bring further challenges: some we can anticipate with a degree of confidence while others will take many market participants by surprise. We believe the strongest, highest quality businesses will once again prove to be most resilient to those challenges, and best able to grow profitably and compound wealth over time. These are the types of businesses represented in the Aoris portfolio.
File: https://commentary.quantreports.net/wp-content/uploads/2022/03/63ca1ef7fc74aa82e9e3f244_Aoris-Quarterly_Report-2022-Dec-Combined-02-r4v1.pdfSeptember, 2022
The international equity market, as measured by the MSCI AC World Accumulation Index ex-Australia, declined by 0.3% in the quarter (all returns are in A$ unless stated otherwise). Equity markets fell by 5.6% in local currency terms, with changes in foreign currencies adding 5.3% to the A$ return. The Aoris International Fund (Class A – Unhedged) rose by 3.6% in the quarter, outperforming its benchmark by 4.0%, while the Aoris International Fund (Class C – Hedged) declined by 1.6%, also outperforming its benchmark by 4.0%.
During the quarter, Nike declined by approximately 13%, detracting 0.7% from Fund performance. No other portfolio holding fell by more than 3% in the quarter. Energy was once again the best-performing sector, rising by 5.3% for the quarter, while the worstperforming sector was Communication Services, which declined by 8.0%. The impacts of persistently high inflation and progressively tighter monetary policy continue to cascade through the global economy.
In the September quarter, these two factors had a particularly noticeable impact on three broad areas: mortgage interest rates, energy costs in the UK and Europe, and the US dollar.
• The interest rate on a 30-year mortgage in the US at the end of September was 6.7%, the highest rate for 15 years. The monthly outgoings to service a mortgage at the prevailing interest rate on a median US home price is 50% higher than a year ago. This is likely to severely slow the purchase and sale of existing homes and, in turn, spending on home furnishings and renovations.
• The impact of higher gas prices has been severe in the UK and Europe. To shield households from the full increase in their energy bills until 2024, the UK government has committed to spend £150 billion on subsidies, which is over 5% of UK’s GDP. Gas prices in Europe are about eight times their average of the last 10 years, and 10 times more expensive than prices in the US. This will have a material impact on industrial activity and the competitiveness of European manufacturing, not to mention European government debt, should governments share the burden.
• Since the beginning of this year, the US dollar has strengthened by 17% against a basket of other currencies, as measured by the US Dollar Index. An increase of this magnitude can materially impact the global economy in myriad ways. Two of these are ‘imported inflation’, or the higher cost for many countries of commodities such as oil, which are priced in US dollars, and the higher debt-servicing cost for countries that have issued foreign debt denominated in US dollars.
June, 2022
The international equity market, as measured by the MSCI AC World Accumulation Index exAustralia, declined by 7.8% in the quarter (all returns are in A$ unless stated otherwise). Equity markets fell by 13.7% in local currency terms, with changes in foreign currencies adding 5.9%.
The Aoris International Fund (Class A – Unhedged) declined by 8.4% in the quarter, 0.6% behind its benchmark, while the Aoris International Fund (Class C – Hedged) declined by 15.5%, underperforming its benchmark by 1.2%.
During the quarter Nike and Experian both declined by approximately 17%, detracting 1.2% and 1.0% from fund performance respectively. No other stock held over the quarter declined by more than 10% or detracted more than 0.8% from fund performance.
The complexion of the market in the June quarter looked much like the prior quarter, with Energy the best-performing sector, up by 3.5%, and Information Technology the worst, with a fall of 14.5%. Over the six months to June, the difference in performance between the two sectors is a stark 47.1%.
File: https://commentary.quantreports.net/wp-content/uploads/2022/03/62d4d0983ee38703f29295d0_Aoris_Quarterly-Report_Jun-2022.pdfMarch, 2022
The international equity market, as measured by the MSCI AC World Accumulation Index ex-Australia, declined by 8.6% in the quarter (all returns are in A$ unless stated otherwise). Equity markets fell by 5.3% in local currency terms, with currency changes detracting a further 3.3%.
The Aoris International Fund (Class A – Unhedged) declined by 12.8% for the quarter, 4.2% behind its benchmark, while the Aoris International Fund (Class C – hedged) declined 9.6%, underperforming its benchmark by 4.6%.
Reflecting the dramatic rise in oil and gas prices, Energy was by far the best-performing sector for the March quarter, returning 17.3%. This was followed by the Materials sector, which rose by 0.5% as the prices of non-energy commodities such as iron ore and aluminium were strong across the board. We avoid investing in commodity companies for a number of reasons, including their susceptibility to external variables such as supply shocks, geopolitics and changes in government policy, and their generally poor historical returns on capital through the cycle. We believe that eschewing these sectors in favour of businesses with more attractive profitability and growth characteristics will assist us in achieving our 8–12% return objective over the cycle. We recognise that there will be periods, such as the quarter just past, where our absence from these sectors harms our returns relative to the market. Among the major underperforming sectors was Information Technology, which declined by 13.1% as investors questioned the value or indeed sustainability of many emergent technology businesses, which had been the subject of much enthusiasm through the pandemic.
File: https://commentary.quantreports.net/wp-content/uploads/2022/03/62677bae9b77183d80549e0e_Aoris_Quarterly-Report_Mar_2022.pdfDecember, 2021
The international equity market, as measured by the MSCI AC World Accumulation Index exAustralia, rose by 6.1% in the December quarter (all returns are in A$ unless stated otherwise). Equity markets rose by 6.7% in local currency terms, while changes in currency values detracted 0.6% from the A$ return. For the year 2021, the market rose by 26.0%, of which 5.7% was from currency changes.
The Aoris International Fund (Class A – Unhedged) returned 15.1% for the quarter and 41.3% for the year, outperforming our benchmark by 9.1% and 15.4% over these periods respectively. The Aoris International Fund (Class C – Hedged) returned 16.1% for the quarter and 34.4% for the year, exceeding its benchmark by 9.4% and 14.1% respectively. In understanding the contributors to our performance, it is interesting and instructive to note how little it had to do with being in the right sectors of the market.
For the full year, the four MSCI sectors that outperformed the benchmark were Energy (up 44.4%), Information Technology, Financial and Real Estate. Our portfolio had holdings from just one of these four sectors, Information Technology. On the other hand, we were over-represented in the worst performing sector for the year, Consumer Discretionary, which rose by 15.7%, lagging the market by just over 10%. Three of our 15 holdings are from this sector, but the returns for the year from those three investments ranged from 26% to 82%. As discussed at length in the accompanying annual letter to investors, what did aid our returns in 2021 was our ownership of businesses that gained market share through the pandemic at an accelerated rate. In many cases these competitive gains didn’t become apparent until the end markets served by these businesses began to recover.
File: https://commentary.quantreports.net/wp-content/uploads/2022/03/61dfaa7226873320636ffb19_Aoris_Quarterly-Report_Dec_2021.pdfasset_class:
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Quarterly Report
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