Performance The fund had an excellent quarter returning 12.0% in USD (+3.2% in ZAR), substantially exceeding the MSCI World Index’s 8.6% in USD (+0.0% in ZAR). Year to date, the portfolio has performed well against the backdrop of a strong market, returning 28.1% in USD (24.5% in ZAR) vs. the MSCI World Index’s 27.7% (24.1% in ZAR). Rand appreciation against the dollar reduced returns substantially overthe last quarter and trimmed some of the annual return. We think this should be ignored and any Rand strength viewed as an opportunitytokeep adding to offshore exposure. Since inception, the fund has delivered an annualised return of 9.7% in USD (15.2% in ZAR) –strongly outperforming the MSCI World Index’s 7.8% in USD (13.3% in ZAR) over the same period. Our investment approach has delivered morethan 5 years of consistent top quartile performance and a 10 year plus track record of strong alpha generation.

Global Macro
Global markets had a strong finish to the year returning 8.6% in USD. This is in stark contrast to the last quarter of 2018, when global equities suffered an 18% selloff on the back of a slowdown in profit growth, concerns around a trade deal deadlock and central banks reducing monetary stimulus. In response to this, central banks reversed course and signalled a continued commitment towards stimulus to support the late cycle economic expansion. This flood of liquidity resulted in sgtrong returns for almost every asset class in 2019. Regional performance was once again skewed towards the US (+31%), Euope (+26%) with Emerging Markets, Asia ex Japan and Japan all delivering high-teen returns. While much of the day to day news around risk focuses on the latest deal or no deal trade scenario and general geopolitical risk, the real tussle going on in the markets is between the opposing dynamics of slowing growth on the one hand, and vigorous central bank stimulus on the other. This has resulted in an atypical environment where both risk-on (equities) and risk-off (bonds) assets hav done well at the same time. It seems unlikely that this happy condition can persisst.

The change in global earnings growth expectations was 2.2% for 2019., mirroring softer economic data. Year on year earnings growth was negative for Q3 and expectations are for it to be negative again in Q4, with a return to growth through 2020. Equities have rallied in anticipation and the returns in 2019 were essentially a funcition of valuation expansion. Equity ratings are now elevated, and companies will need to delvier growth to ensure reasonable returns over the next year. On the positive side there seems little ristk of a tightening in monetary policy for the foreseeable future.

Portfolio
The largest sectoral positions remain in consumer Discretionary and Info Tech - collectively the largest contributors to return. The slight underweight in Healthcare also contributed to returns. The largest underweights are in Industrials, Consumer Staples and Financials. There is no thematic view implied by this - it simply a function of where we find companies that have the best ability to generate real economic value.

At a stock level, the best performers were United Health Group (+35.8% in USD), Domino's Pizza (+20.4% in USD) and Blackstone (+15.6% in USD). Investors will recall that United Health was one of worst performers in Q3 off the back of perceived political risk. This illustrates how important it is to stay invested with great companies and not get too distracted or alarmed by exogenous factors Detractors from performance included Home Depot and a PUT option protection on the S&P100. Home Depot looks very attractive when comparing it's valuation to its returns on invested capital - it continueas to invest, in order to be the lowest cost operator in it's category.

Given the length of the economic cycle, a slowdown in growth and rather elevated valuations, we believe it is as important as ever to focus on companies that generate high returns on their investments and have a plausible runway for reinvesting for growth.
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