Portfolio Review:

The Northstar Global Flexible Fund delivered a return of +0.26% for the 3 months to end-September 2019, while the average fund return in the Morningstar EEA USD Flexible Fund category was +0.23%.

For the 12 months to end-September 2019 the Fund returned +5.48%, ahead of both the MSCI World Index of global equities and the Morningstar peer group return of 1.83% and +1.42% respectively. An annualised return of 7.29% since inception places the Fund amongst the top 5% of multi asset global flexible funds ranked by Morningstar.

Treasury yields picked-up where they left off last quarter, continuing a relentless march lower, from 3.2% in November 2018 to 1.45% in early-September 2019, with real yields in negative territory for the first time since July 2016. The rally was, however, brought to an abrupt halt over the course of the first half of September as expectations of a de-escalation in US-China trade hostilities as well as a lukewarm reception to further ECB stimulus, led to a 44bps hike in the US 10 Year Treasury yield.

Sharply higher rates in turn sparked equity market rotation out of so-called Growth into Value stocks. The MSCI All Country World Banks Index – a proxy for beaten down stocks – enjoyed a 9.9% rally over a fortnight in late-August to early-September, yet still underperformed the broader market by over 160bps in the quarter. Global banking stocks, to which the Fund has no exposure, have lagged the market by over 600bps year-to-date.

Equity selection remains a key driver of returns. The Fund’s underlying equities delivered a return of 0.81% for the quarter, ahead of the MSCI World Index return of 0.53%. Blackstone Group (+11.0%), Alphabet Inc (+12.8%) and Medtronic plc (+12.7%) were the best performing holdings over the 3 months, with 61bps, 52bps and 41bps of outperformance attributable to each respectively, taking account of the Fund’s weighting relative to the equity benchmark.

Walt Disney (-6.1%) and LVMH Louis Vuitton Moet Hennesy (-6.7%), two of last quarter’s biggest contributors, detracted this quarter, while the lack of any exposure to Apple (+13.6%) undermined relative performance. Disney, LVMH and Apple respectively contributed -40bps, -37bps and -26bps to the quarterly return of the equity component of the fund.

Fund Positioning:

Having increased the Fund’s allocation to equities in early January, we actively reduced exposure to the asset class during the quarter, taking account of the rally year-to-date and the lower intrinsic value discount of the Fund’s equity holdings. Quarter-on-quarter, the equity exposure reduced from 63% to 58%.

We continued the strategy employed in the 2nd quarter of increasing US dollar bond exposure, albeit relatively short duration. However, following the rally in bonds through late-August we once again reduced exposure to Bonds from a high of 21% at the end of July to 16.2% by quarter end, choosing to hold the Fund’s significant residual cash balance in high quality, short-term money market instruments.

Portfolio Review:

The Northstar Global Flexible Fund delivered a return of +3.95% for the 3 months to end-June 2019. The Fund’s composite benchmark, comprised of 60% MSCI World Index and 40% Bloomberg Barclays Global Aggregate Bond Index returned +3.97%, while the average fund return in the Morningstar EEA USD Flexible category was +2.14%.

For the 12 months to end-June 2019 the Fund returned +10.93%, which compares favorably to the composite and peer group returns of +6.21% and +2.14% respectively, placing the Fund amongst the top 4% of Global Flexible funds over the period.

Despite negative global growth data, equities continued were they left off in the first quarter, rallying strongly in April (+3.6%), before taking a breather in May (-5.68%). The pause was short lived, however, as risk appetitive returned in June, after the Federal Reserve signaled a rate cut was likely at its July meeting. The MSCI World Index returned +6.63% in June to end the quarter +4.0% higher. The Financials (+6.43%), Information Technology (+5.91%) and Consumer Discretionary (+5.62%) sectors led the market, with Energy (-1.11%) Real Estate (+0.48%) and Health Care (+1.57%), lagging.

The US 10 Year Treasury yield continued its relentless march lower, declined a further 40 bps in the quarter to 2.00%, extending the rally from 3.24% in early-November. Global bonds, therefore enjoyed a strong quarter with the Bloomberg Barclays Global Aggregate Index 3.9% higher.

Equity selection remains a key driver of returns. The Fund’s underlying equities delivered a return of 6.34% for the quarter, 221 bps ahead of the MSCI World Index. Blackstone Group (+28.1%), Walt Disney Co. (++25.7%) and LVMH Moet Hennessy (+17.1%) were the best performing holdings over the 3 months, with 138 bps, 100 bps and 71 bps of performance attributable to each respectively, taking account of the Fund’s weighting relative to the equity benchmark.

Cognizant Technology Solutions (-12.22%), British American Tobacco plc (-10.26%) and Philip Morris International (-9.84%) were the worst performing holdings, with the largest negative attribution coming from Alphabet Inc (-59bps), Philip Morris International (-49bps) and Reckitt Benckiser plc (-37bps).

Fund Positioning:

Having increased the Fund’s allocation to equities in early January, we actively reduced exposure to the asset class during the quarter, taking account of the rally year-to-date and the meaningfully reduced intrinsic value discount of the Fund equity portfolio. Quarter-on-quarter, the equity exposure reduced from 68.01% to 62.96%.

Following a period of strong relative performance, we completed the switch out of British American Tobacco plc (BTI) into Phillip Morris in late-June. We initiated this action in October 2018 owing to a preference for Philip Morris’s stronger positioning in Next Generation Products (NGP) and on concerns over BTI’s greater exposure to US regulatory risk.

We increased the Fund’s exposure to Bonds from 14.38% to 19.53% during the quarter, remaining considerably underweight and short duration.

Instit BCI Worldwide Flexible Growth Fund amalgamted with the Northstar SCI Global Flexible Fund on the 29 January 2019. The fund keeps its history.