Market overview

The second quarter of 2019 maintained the positive trend of the previous quarter, albeit with increased volatility on an intra-quarter basis. The US and Developed markets rebounded strongly while emerging markets nudged up slightly after a stellar first quarter.

Global risk markets experienced a brief correction in May, but the rebound has been swift and characterised by a synchronised and correlated upsurge. The US Fed has continued to signal a remarkable reversal in policy stance. The Fed’s pivot in January ushered in a ‘risk-on’ rally and a return to a regime of favouring the search for yield. The US Fed now appears to be on course to reducing interest rates in July. In 2019, central banks have adopted an abrupt turnaround from Quantitative Tightening to a potential resumption of Quantitative Easing. Market participants are actively repositioning, as financial markets are currently in the throes of navigating this change in regime.

As a consequence, the CBOE Volatility Index (VIX) spiked in May and has stabilised at a relatively higher level. For the moment, the market appears willing to disregard the deep drawdown in December 2018 and the recent spike in volatility. In June 2019, investor complacency and related euphoria returned, as trade-war fears ebbed and central bank dovishness became the prevailing narrative. US equities have rebounded so strongly that we are once again close to all-time highs.

An additional feature of the quarter was the continued recovery in emerging market debt securities. The combination of low valuations, high yields and a supportive Fed policy has buoyed EM financial markets.

Global Bonds advanced by 3.4% as market participants started to price in the Fed’s change in policy stance and synchronised Central Bank dovishness. Emerging market bonds advanced in line with the rally in US Bond yields. It remains unclear whether US Bonds are signalling a return to QE or an upcoming recession.

For the quarter, most major asset classes advanced, with relatively few laggards. Gold surged by 9.0% as the US Dollar weakened slightly on the back of worsening yield considerations and declining growth prospects.

The MSCI World Index advanced by 4.2%. MSCI Emerging Market Index appreciated by a paltry 0.7% over the quarter.

Global property, as measured by the iShares Developed Market Property Yield ETF which tracks the FTSE EPRA / NAREIT Developed Index advanced by 0.7% over the quarter. Global Property was relatively resilient during the market drawdown in late 2018 and had an exceptional first quarter rebound. The second quarter has seen a rare divergence in the returns of global listed property and bonds.

Portfolio overview

The Fund lagged the World Index (in $) for the quarter, with a 0.61% advance. The MSCI World Index experienced a 4.00% return over the quarter.

Global Equities rebounded strongly in line with risk markets, as less restrictive monetary policy and lower fears of a hostile trade war appeared more likely.

Fund performance has lagged the recent advance due to stock selection and cash drag. Market leadership has been very narrow and sector specific. Our lack of exposure to the winning sectors explain most of the performance lag. Our defensive positioning protected capital in down markets but has struggled to keep pace in the recent recovery.

Stock selection has been a contributor while sector selection has been a significant detractor. Dollar weakness continued and provided a mild tailwind to non-US listed stocks. The fund has lower direct EM exposure, which added value in the second quarter.

At the sector level, lower exposure to Financials, Technology and Materials were the biggest detractors. Higher exposure to selected Real Estate stocks, was the most significant detractor. On the other hand, our significant underweight position in Utilities and Healthcare contributed at the margin.

The Fund is focused on stock-picking and accordingly, stock selection will always be the primary driver of returns. Over the quarter, Tobacco stock selection detracted, after adding the most value in the previous quarter.

The Fund has maintained above-average liquidity, since mid-year 2017. As a consequence, cash drag has been a perennial feature of our return profile. In Q2, the drag from cash was an additional reason the fund lagged the broader market.

Portfolio positioning

We are patient and the Fund positioning remains virtually unchanged. The recent advance has enabled us to reposition our exposure but the overall slant of the portfolio remains intact. We continue to hold high quality businesses, with resilient earnings prospects, solid balance sheets and valuations. We remain ready to swiftly deploy liquidity as market opportunities unfold.

Market overview
The first quarter of 2019 reversed the negative trend of the previous quarter. The US Equity market rebounded strongly and emerging markets continued the recovery that had started in late 2018.

Global risk markets surged upward in a synchronised and correlated fashion as the US Fed surprised the markets with an abrupt reversal in policy stance. The Fed's pivot ushered in a 'risk-on' rally and a return to a regime of favouring the search for yield. The US Fed has since, confirmed their pause in tightening and now appear to be on course to reducing interest rates in the future. The abrupt turnaround from Quantitative Tightening to a potential resumption of Quantitative Easing is truly unprecedented and financial markets are currently in the throes of navigating this change in regime.

As a consequence, the CBOE Volatility Index (VIX) declined significantly. Volatility has returned to the relatively stable pattern of 2017. The spike in volatility and deep drawdown in December 2018, is now a distant memory. Investor complacency and related euphoria has returned. Developed market equities have rebounded so strongly that we are close to all-time highs.

An additional feature of the quarter was the continued recovery in emerging market securities. The combination of low valuations, high yields and a supportive Fed policy has buoyed EM financial markets. Global Bonds advanced by 1.9% as market participants started to price in the Fed's change in policy stance. Emerging market bonds advanced in line with the rally in US Bond yields. It remains unclear whether US Bonds are signalling a return to QE or an upcoming recession.
For the quarter, most major asset classes advanced, with relatively few laggards. Gold was surprisingly resilient the US Dollar remained stable based despite worsening yield considerations and declining growth prospects. The MSCI World Index advanced by 12.6%. MSCI Emerging Market Index appreciated by 10.0% over the quarter. Global property, as measured by the iShares Developed Market Property Yield ETF which tracks the FTSE EPRA / NAREIT Developed Index advanced by 14.6% over the quarter. Global Property was relatively resilient during the market drawdown and has held it's own in the recent rebound.


Portfolio overview
The Fund lagged the World Index (in $) for the quarter, despite a satisfactory 10.2% advance. The MSCI World Index experienced a 12.5% return over the quarter.

Global Equities rebounded strongly in line with risk markets, as less restrictive monetary policy and lower fears of a hostile trade war appeared more likely.

Fund performance has lagged the recent advance but remains well ahead of the MSCI World over six months, a period that includes a deeper market drawdown. Our defensive positioning protected capital in down markets but has struggled to keep pace in the recent recovery.

Stock selection has been a solid contributor while sector selection has been a significant detractor. Dollar strength continued and provided a mild headwind to non-US listed stocks. The fund has lower direct EM exposure, which added at some value at the margin.

At the sector level, lower exposure to Energy, Industrials and Technology were the biggest detractors. Higher exposure to selected Real Estate stocks, made a significant contribution. On the other hand, our significant underweight position in Utilities and Healthcare were the biggest contributors.

Stock selection has been the primary driver of returns. In particular, the significant overweight in Tobacco stocks added the most value. The Fund has maintained above average liquidity, since mid-year 2017. As a consequence, cash drag has been a perennial feature of our return profile. In Q1, the drag from cash was the main reason the fund lagged the broader market.

Portfolio positioning
We are patient and the Fund positioning remains virtually unchanged. The recent advance has enabled us to make marginal changes but the overall slant of the portfolio remains intact. We continue to hold high quality businesses, with resilient earnings prospects, solid balance sheets and valuations. We remain ready to swiftly deploy liquidity as market opportunities unfold.

Market overview

The fourth quarter of 2018 saw an escalation in the "risk-off" trend of previous quarters. The US Equity market initially bucked the trend but December saw an abrupt and deep capitulation which led to global contagion.

The growing disparity across markets and economies intensified over the quarter as trade war rhetoric and central bank actions once again took center stage. The Fed maintained their commitment to quantitative tightening in early December, which initially supported the US Dollar and maintained pressure on Emerging Markets. Fed action and the accompanying narrative eventually led to a tantrum like sell-off in risk assets in December. Safe havens like Gold and Treasuries benefitted.

The CBOE Volatility Index (VIX) spiked in December. Volatility had been relatively stable since the significant turbulence in early 2018 and despite the increased risk aversion since October. The sudden and deep drawdown in risk assets has punctured the bubble of investor complacency and moderated expectations.

Another feature of the quarter was the inability of security prices to rebound quickly, as was the case in previous cycles. Emerging market securities are declining at a slower rate and the synchronized global growth narrative is rapidly being replaced by fears of a global slowdown, particularly in China.

Global Bonds advanced by 1.2% over the quarter and resumed their customary role as a safe haven in times of distress. Emerging market bonds declined marginally by 0.18% in dollars. US Bonds were surprisingly resilient, which seems to indicate that the Fed tightening cycle may be coming to an end.

For the quarter, most major asset classes declined with relatively few safe havens. Gold advanced by 9.67%. The US Dollar remained stable based on relative yield considerations and better relative growth prospects.

The MSCI World Index experienced a large 13.3% loss over the quarter (it's worst quarterly performance since the third quarter of 2011). MSCI Emerging Market Index declined by 7.4% over the quarter.

Global property, as measured by the iShares Developed Market Property Yield ETF which tracks the FTSE EPRA / NAREIT Developed Index had a difficult quarter with a decline of -5.28%

Portfolio overview

The Fund outperformed the World Index (in $) for the quarter, with a 10.55% decline. The MSCI World Index experienced a large 13.42% loss over the quarter (it's worst quarterly performance since the third quarter of 2011). MSCI Emerging Market Index declined by 7.41% over the quarter.

Global Equities endured a horrific quarter with sustained downside volatility. The initial downside was driven by Emerging market equities, and in December US Equities experienced a steep downturn.

The extent of the outperformance in the fourth quarter has placed the fund ahead of the MSCI World on most periods ranging from 3 months, 1 year, 2 years and since inception.
Stock selection has been a solid contributor while sector selection has been a significant detractor. Dollar strength continued and provided a mild headwind to non-US listed stocks. The fund has lower direct EM exposure, which detracted in Q4, despite adding significant value in prior periods.

At the sector level, lower exposure to Energy, Materials, Industrials and Technology contributed strongly. Higher exposure to selected Real Estate, Consumer Staples and Communication Services also made a significant contribution.

On the other hand, our significant underweight position in Utilities and Healthcare were the biggest detractors.

The Fund has maintained above-average liquidity, since mid-year 2017. As a consequence, cash drag has been a perennial feature of our return profile. In Q4, our patience was finally rewarded and cash was a strong contributor to relative returns.

The sell-off in US Equities and EM equities in general, has provided increased opportunities for us to deploy cash.

Portfolio positioning

We are patient and the Fund positioning remains virtually unchanged. The recent sell-off has enabled us to make marginal changes but the overall slant of the portfolio remains intact.

We continue to hold high quality businesses, with resilient earnings prospects, solid balance sheets and valuations. We remain ready to swiftly deploy liquidity as market opportunities unfold.

Market overview

The third quarter of 2018, saw a continuation of the "risk-off" trend of previous quarters. The US Equity market bucked the trend, led by the Tech heavy Nasdaq which maintained strong positive momentum.

The MSCI World Index appreciated by 5.1% compared to the MSCI Emerging Market Index which declined by 0.9% over the quarter.

The growing disparity across markets and economies intensified over the quarter even though trade war rhetoric and related actions waned slightly. The Fed maintained their commitment to quantitative tightening, which bouyed the US Dollar and maintained pressure on Emerging Markets.

The CBOE Volatility Index (VIX) held steady, with a slight downward bias from the spike in February. Volatility has been relatively stable since the significant turbulence in early 2018. Heightened investor complacency and apparent lack of fear remain a worry - a repeat of the VIX spike in February will lead to sudden and deep drawdowns in risk assets.

Another feature of the quarter was the stability of higher risk-premia across various asset classes. Securities prices have not rebounded quickly, as was the case in previous cycles. Emerging market securities are declining at slower rate but the synchronized global narrative no longer provides support.

Global Bond yields rose across the board. Emerging market bonds were the hardest hit, with a 10.4% decline in dollars. US Bonds were once gain the most resilient. Turkish bonds declining by 21.6% and Brazilian bonds by 15.7%.

For the quarter, most major asset classes declined with relatively few safe havens. Gold declined by 8.3%. The US Dollar strengthened based on relative yield considerations and an underlying growth narrative.

Global property, as measured by the iShares Developed Market Property Yield ETF which tracks the FTSE EPRA / NAREIT Developed Index had an uneventful quarter with slight decline of 0.15%

Portfolio overview

The fund lagged the World index for the quarter, with a satisfactory positive performance of 0.96% (NAV to NAV; after all costs). The MSCI World appreciated by 5.0%

Global equities have been surprisingly resilient in 2018, with sporadic downside volatility. The extent of the lag in the third quarter has placed the fund behind the MSCI World on a year to date basis. Stock selection has been a solid contributor while sector selection has been a significant detractor.

Stock selection remains solid, with a diversified list of strong performers over the quarter. Dollar strength continued and provided a mild headwind to non-US listed stocks. The fund has lower direct EM exposure, which added value in Q3, as the MSCI EM fell by 0.9% in USD.

At the sector level, lower exposure to Materials contributed strongly. Higher exposure to selected Financials and Media stocks also made a significant contribution. On the other hand, our significant underweight position in Technology was the biggest detractor and primary explanation for the significant lag in the quarter.

The Fund has maintained above-average liquidity, since mid-year 2017. As a consequence, cash drag has been a perennial feature of our return profile, in a market that has mostly advanced and been less suited to our premature positioning. Cash drag was particularly acute in Q3, as the US equity market led the market higher.

The sell-off in EM equities has provided increased opportunities for us to deploy cash.

Portfolio positioning

We are patient and the Fund positioning remains virtually unchanged. We continue to hold high quality businesses, with resilient earnings prospects and reasonable valuations. We remain ready to swiftly deploy liquidity, as and when market opportunities unfold