September, 2023
The Fund returned -4.7 % over the quarter. Returns were pressured by weakness in key discretionary retail holdings, as well as continuing softness in our core Chinese positions.
Our Fund results reflect a combination of pressures. Higher interest rates and weaker consumer spending have impacted the outlooks for many of our developed market holdings. The strength in our Vietnamese holdings – which bounced following a severe sell-off – was offset by weakness in our Chinese stocks as ongoing property market issues in that economy curtailed consumer spending. The strength of the US dollar and our relatively low exposure to that market was another headwind for performance relative to the broader market.
Our top contributors for the quarter included leading Vietnamese retailer Mobile World, whose share price rose around 20% over the quarter on improving sentiment toward the Vietnamese economy and results that showed business resilience and solid inventory control.
Jeweller Pandora rose 20% in response to results that beat market expectations as the turnaround under new management continues. We also saw a strong contribution (up nearly 9%) from Japanese confectionary maker Ezaki Glico which appears to have successfully passed on input cost increases into product pricing in key categories.
Key detractors from performance included apparel retailers SMCP (-52%) and Aritzia (-36%). SMCP fell early in the quarter as it reported disappointing first half results, then declined further in September as it released a profit warning primarily citing weakness in Chinese demand. Aritzia too called out weakening demand, but this was compounded by poor inventory control as the group builds out a large new internal warehouse system. Results released toward the end of the quarter showed an improving trend and the stock responded by bouncing 6% on the day of the release.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/PIBFqtr_0923.pdfJune, 2023
The Fund (C Class) returned -3.4% for the quarter.1 This is a disappointing outcome in the context of buoyant global markets and reflects our geographic positioning and net exposure levels.
We have positioned the Fund with a relatively low net exposure due to our concerns about the outlook for developed market consumption given the likely impact of rapid interest rate increases on the broader economy. While in some markets and sectors we have seen rate rises cause a degree of turmoil (US regional banks, home-related spending, used car dealers, Sydney house prices), we have yet to really see this impact wage growth and employment.
Indeed, renewed optimism about the state of the consumer drove a rally in discretionary consumption stocks during the quarter. “Meme” stocks, electric vehicle stocks and other highly speculative issues were also beneficiaries of this reversal in sentiment.
Our net short position in US stocks meant we did not fully benefit from the strength in US markets, and the Fund is unable to own (due to its consumer brands focus) the vast majority of the Nasdaq stocks most exposed to the burgeoning artificial intelligence (AI) thematic. Our sizeable exposure to poorly performing Chinese stocks (-3% contribution to performance) also weighed on the Fund’s performance, as the anticipated rebound in the Chinese consumer has been weaker than expected.
Our Japanese investments delivered a positive return in local currency terms, but the weak yen meant this translated to a negative return in Australian dollar (AUD) terms. At the beginning of June, we hedged a large portion of our yen exposure back to the US dollar (which has been strong), but not before we incurred the negative eff ects of the move from around ¥133 to ¥139 to the USD (¥144 at the time of writing).
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/PIBFqtr_0623.pdfMarch, 2023
The Fund (C Class) delivered a solid 6.6% return for the quarter, lagging the broader market indices due to very defensive positioning (average net long exposure of 60% during the quarter).1
Over the year, the Fund gained 22.8%, which is considerably better than the general market. Of course, this performance was in part a rebound from a very weak prior year, but the three-year return of 15.5% p.a. is also quite satisfactory.
Interestingly, the first week of the quarter generated approximately 75% of the Fund’s total return, as the rally in our Chinese holdings continued. This dynamic then reversed with rising geopolitical tensions leading to a steady sell-off in China through most of the rest of the quarter, reinforced by weaker-than-hoped-for economic data as post-lockdown activity was impacted by a major wave of COVID infections.
The weakness in our Chinese holdings and the headwind from our short positions (-2.8% contribution to performance) were mostly off set by strength in some of our larger US and European positions. In particular, social media giant Meta Platforms rose 76% in the quarter as management demonstrated a firm commitment to reining in expenditures to shore up profitability. Leading low-cost European gym chain Basic-Fit rose 48% as market concerns around a potential need to raise capital proved unfounded, helped by European energy prices falling from extreme levels, thus improving the overall consumer demand outlook. This general improvement in sentiment in Europe also buoyed our positions in jeweller Pandora (+34%), apparel brand owner SMCP (+26%), car manufacturer BMW (+21%) and discount general merchandise retailer B&M European Value Retail (+17%).
Major detractors from performance included Chinese e-commerce player JD.com (-22%) and food delivery network Meituan (-18%), both falling on fears of increased competition from Bytedance-owned Douyin (China’s TikTok). Leading Vietnamese electronics retail chain Mobile World Investment fell 10% as a post-pandemic pullback in sales magnified the impact of general economic weakness stemming from falling export orders, coupled with issues in the property and banking sectors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pibfqtr_0323.pdfDecember, 2022
A dramatic rally in Chinese stocks from their intra-quarter lows helped the Fund (C Class) deliver a pleasing 10.7% return over the quarter.
The stocks rallied as deeply negative investor sentiment on China’s government leadership and economic policies began to reverse as the likelihood of a near-term exit from zero-COVID policies increased. The solid quarter-end performance result, however, understates the extent of the rebound following a very rocky start through the end of October, as the Fund fell 6% due to increasing investor fears around China’s economy, even as global markets rose almost 7%, boosted by strong performance in the US and Europe.
From its intra-quarter lows, the Fund rose 16.7%. Despite the strength in global markets, our short book provided a positive contribution, assisted by the continued dismal performance of speculative former high-flyers. Of the ten stocks in which the Fund held positions that registered the largest declines in price during the quarter, eight were short positions for the Fund. This was a particularly pleasing result and contributed solidly to the Fund’s overall returns. Finally, the Fund benefited from our relatively large yen exposure and action taken in October to shift some US dollar (USD) exposure back into the Australian dollar.
The USD reversed dramatically over the quarter, falling against all major currencies from considerably overbought levels. The yen was particularly strong as the Bank of Japan signalled it may be moving toward the end of its ultra-easy monetary policy via its action to increase the target yield range for the 10-year Japan Government Bond. While the strength of the AUD and the global nature of the Fund meant that currency provided a slight negative contribution overall, our active currency management mitigated this significantly.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pibfqtr_1222.pdfSeptember, 2022
It was a quarter of two halves for global equity markets, with a wild intra-quarter ride that resulted in a round-trip roughly back to where we started. The Fund (C Class) returned -1.5%. Stocks rallied strongly through to mid-August, led by many of the weakest performers from the June quarter. Through this period, the Fund gave up all of the positive relative performance it had enjoyed in the three months to June, largely due to losses in our Chinese stock holdings and our short positions in strongly rebounding US consumer discretionary stocks. In the second half of the quarter, our view of the rally being a brief positioning-driven event proved correct, as the market sold off through to the end of the quarter on further strong US infl ation prints and another hawkish rate increase by the US Federal Reserve (Fed).
The rapid increase in interest rates has caused market turmoil, leading central banks, such as the Bank of Japan and the Bank of England, to intervene in the currency and government bond markets, respectively, to ensure orderly pricing. Rising interest rates in the second half of the quarter benefi ted our short positions, both in relation to “bondproxy” consumer staples and economically sensitive consumer discretionary stocks. Soaring European energy prices compounded this effect, leaving consumers in that region with less in their pockets to spend on daily needs, let alone splurge on occasional wants. Indeed, investment bank Jefferies estimates income available for discretionary expenditure in the UK could fall 6%, even with increased government subsidies for household energy bills.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pibfqtr_0922.pdfJune, 2022
Global markets experienced a great deal of turmoil in the quarter as rampant inflation inspired new levels of central bank hawkishness, which withdrew liquidity from markets, compressed valuation multiples, and raised fears of a forthcoming recession and thus deterioration in corporate earnings. In this context, it is pleasing that the Fund (C Class) returned a positive 5.6% for the quarter. The US bore the brunt of the selling in local currency terms. Especially hard hit were the more speculative growth stocks, as well as major benefi ciaries of the pandemic and/or related stimulus.
European markets fared somewhat better, but consumer businesses exposed to discretionary spending were sold off aggressively as their customers faced surging energy prices as a result of the ongoing Russian invasion of Ukraine, leaving less money for discretionary purchases. In stark contrast to recent experience, our Chinese holdings boosted returns signifi cantly (+5.1% contribution), as major cities emerged from harsh lockdowns and the government acted to stimulate the economy while delivering more favourable messaging around the policy outlook in relation to digital platforms. The hangover from consumer stimulus in the US and risks to valuations from infl ation and rising rates are factors we have been discussing for some time,² particularly in relation to spending on consumer durables that was pulled forward due to pandemic lockdowns. Our short positions against individual stocks exposed to these dynamics, as well as broader indices, contributed 8.6% to the Fund’s return for the quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pibfqtr_0622.pdfMarch, 2022
We experienced a particularly difficult period for performance in the March quarter, with the Fund (C Class) buffeted by multiple negative market currents that resulted in a decline of -20.5%.
While the general market was also weak, Fund performance was particularly affected due to our sector and geographical positioning, which overrode the benefits of our low net market exposure and gains on our short positions (+1.6% contribution). Rapidly increasing interest rates led market instability earlier in the quarter, but it was the Russian invasion of Ukraine and its consequences that was at the core of the Fund’s losses – and not just in relation to our direct Russian exposure.
The ramifications of the invasion echoed through global markets, particularly businesses directly exposed to Central and Eastern Europe, and those reliant on commodity inputs or supply chains disrupted by the conflict and the related sanctions and fears of further sanctions.
The Fund held a position of 6.1% in two Russian stocks immediately prior to the Russia-Ukraine invasion. These were in TCS Group (3.2%) and Sberbank Russia (2.9%). Our assessment was that these would prove attractive investments should an invasion not occur, or should there be a speedy resolution to a conflict with a stern but ultimately manageable Western response. We viewed these two scenarios together as more likely than what has in fact eventuated – a bloody and drawn out conflict with a severe Western response and financial market reaction.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pibfqtr_0322.pdfJune, 2021
Global stock markets extended their upward trajectory over the June quarter, buoying the Fund (C Class) to a 5.1% return. Unfortunately, we did not fully participate in the market upside, as we maintained a relatively low net invested position due to our view that many pockets of the market are heavily overvalued.
We observed interesting changes in stock correlations, with returns on individual stocks beginning to diverge greatly from their typical peer groups, as investors reappraised differences in business quality and growth outlook. This contrasts with recent times, where stocks that have similar high-level characteristics have often moved in lockstep. This dynamic was particularly pronounced in the ‘hot’ or speculative areas, but extended to previous beneficiaries of the ‘reopening’ trade, as it has become clearer which companies are benefiting the most from government stimulus spending and a return of customers to stores.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pibfqtr_0621.pdfDecember, 2020
Risk assets rallied strongly during the quarter on the back of the release of positive data from the BioNTech/Pfizer and Moderna vaccine trials, the approval of these vaccines by the US Food and Drug Administration (FDA), as well as a resolution to election uncertainty in the US. In that context, the Fund (C Class) produced a strong quarterly return of 17.9%, with November producing the best monthly return in the Fund’s history (14.0%).
Our active currency positioning with low exposure to the US dollar, helped mitigate the impact of the strong Australian dollar over the quarter.1 This capped a tumultuous year, with events that have affected all of us directly. Perhaps the biggest surprise of 2020 is that despite a global pandemic, ravaging bushfires and increasing geopolitical quarrels, investors who withstood the extreme volatility received a surprisingly pleasant 6% return from international markets. Investors in the Fund gained 19% for the calendar year. With the availability of a vaccine now a current fact rather than a future possibility, investors became willing to ascribe much greater value to the businesses hardest hit by the pandemic. This drove a large re-rating of our substantial holdings in consumer discretionary stocks.
Likewise, a perceived reduction in the risk of business bankruptcies and positive implied flow-on impacts to employment, led investors to improve their views of likely loan losses for our bank holdings, which triggered strong gains. Our ownership of such stocks is not the result of some perverse desire to invest in volatile businesses exposed to economic fluctuations, but rather a reflection of the consistent application of our investment process. Regular readers of this quarterly report may recall periods when the Fund has had significantly different positioning, with substantially smaller exposure to discretionary stocks, financials and the US market, and much larger exposure to digital-related businesses and China. Our current positioning, as always, is a function of where we believe the best opportunities lie to generate excess returns on a risk-adjusted basis.
The substantial downward repricing of any stock heavily exposed to pandemic-related impacts, created a unique opportunity to acquire positions at valuations that implied substantial cash losses in the medium term and/or much reduced profits over an extended period. We took advantage of this buying opportunity, and the Fund’s returns since the beginning of the market rebound at the end of March are a direct reflection of that.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/pibfqtr_1220.pdfasset_class: Foreign Equity
asset_category: Long Short
peer_benchmark: Foreign Equity - Long Short Index
broad_market_index: Developed -World Index
manager_contact_details: Array
ticker: PLA0100AU
release_schedule: Quarterly
commentary_block: Array
factsheet_url:
https://www.platinum.com.au/Our-Products/All-Products/Platinum-International-Brands-Fund
Updates & Reports
Quarterly Investment Manager’s Report
fund_features:
Platinum International Brands Fund aims to provide capital growth over the long-term by investing in companies around the world with well-recognised consumer brand names (including producers of luxury goods, other consumer durables, as well as food, beverages, household and personal care products, retailers, and financial services). The Fund invests in a diverse range of branded consumer companies from well-recognised multinationals with iconic globally recognised consumer brands, through to companies with local or regional brands that have little or no recognition outside of their home market. The Portfolio will ideally consist of 40 to 80 securities that Platinum believes to be undervalued by the market. Cash may be held when undervalued securities cannot be found. Platinum may short sell securities that it considers overvalued. The Portfolio will typically have 50% or more net equity exposure. Platinum may use Derivatives for risk management purposes and to take opportunities to increase returns. The underlying value of Derivatives may not exceed 100% of the NAV of the Fund and the underlying value of long stock positions and Derivatives will not exceed 150% of the NAV of a Fund. The Fund’s currency is actively managed.
structure: Managed Fund