Please note that the commentary is for the US dollar retail class of the fund. The feeder fund is 100% invested in the underlying US dollar fund. However, given small valuation, trading and translation differences for the two funds, investors should expect differences in returns in the short term. Over the long term, we aim to achieve the same outcome in US dollar terms for both funds.

The fund advanced 5.6% against the benchmark (MSCI All Country World Index) of 5.2%, bringing the rolling 12-month performance to 15.7% against the 18.6% returned by the index.
Global equity markets posted good returns over the quarter, adding to already robust returns delivered during the first half of the year. Technology stocks were especially strong and the energy sector had a good quarter on the back of a recovering oil price. Improving global growth, coupled with still buoyant liquidity, has been the main theme for the year so far, and this has proved very favourable for equities. Although the US has begun its monetary tightening phase, Japan and Europe are still expanding their balance sheets while a weakening US dollar has taken away some of the inflationary pressures in emerging markets and allowed for a lowering of rates in those countries.

Europe was again the best performing region this quarter, rising 6.5% (in US dollar terms). Asia ex-Japan delivered the weakest return, rising 3.7% (in US dollar terms). Japan returned 4.0% (in US dollar terms) and North America rose 4.7%. Emerging markets advanced 7.0% (in US dollar terms). The fund continues to be overweight North America, underweight Europe and Japan, and has maintained its overweight position in emerging markets.
Amongst the global sectors, energy (+8.2%), materials (+8.3%) and information technology (+8.2%) generated the best returns. The worst performing sectors were consumer staples (-0.9%), real estate (+1.3%) and utilities (+2.3%). On a look-through basis, the fund was positively impacted by its overweight in information technology and underweight in utilities and telecommunications, while an overweight in consumer discretionary detracted from performance.

Three underlying managers were largely responsible for the fund’s performance over the quarter. Contrarius Global Equity had an excellent quarter, advancing 11.1% which was well ahead of the index. This was largely a result of having a significant overweight position in energy stocks which benefited from the 12% rise in the price of oil.

Coronation Global Emerging Markets Equity also contributed strongly to the overall outperformance for the quarter. Despite very strong returns in emerging markets, the fund delivered alpha of 7% as its Brazilian education stocks, Kroton and Estácio, rose substantially on solid growth numbers and potential future M&A plans. Chinese internet related stocks such as Baidu, 58.com and Naspers (Tencent) also weighed in with good performance.

Likewise, Conatus Global Equity enjoyed strong gains from emerging market exposure (e.g. Tencent) and internet stocks (e.g. Facebook). The fund also benefited from PayPal, which is benefiting from the continued shift to e-commerce; Ferrari, which is expanding its product offering; and Adidas, which continues to take market share in the US sports apparel market.
Three funds that didn’t perform over the period were Maverick Capital, Vulcan Value Fund and Tremblant Capital. Maverick lagged the index due to a large overweight to US healthcare, a sector at the centre of huge debate and which did not advance as much as the overall index.

Vulcan were also hurt by an overweight to healthcare. Tremblant did have positive contributions from its internet stock such as Baidu and Netflix but exposure to media names such Viacom and CBS more than offset those gains, causing its underperformance over the quarter.

Outlook
Satisfactory global growth and favourable liquidity would indicate that equity markets may have further to run in the near term. We have previously noted that US equities appear expensive when viewed by measures such as the Shiller PE ratio, but relative to other asset classes, equities in other parts of the world do still seem reasonably attractive. Rising geo-political tensions are reasons for concern and there may be some volatility ahead as world leaders negotiate their way around North Korea, Iran, Brexit and other pressing issues.
Portfolio manager
Tony Gibson

Please note that the commentary is for the US dollar retail class of the fund. The feeder fund is 100% invested in the underlying US dollar fund. However, given small valuation, trading and translation differences for the two funds, investors should expect differences in returns in the short term. Over the long term, we aim to achieve the same outcome in US dollar terms for both funds.

The fund advanced 4.6% against the benchmark gain of 4.3%, bringing the rolling 12-month performance to 17.3%, against the 18.8% returned by the MSCI AC World Index. The first half of 2017 was largely characterised by momentum investing, especially rallying behind large-cap technology stocks. Passive (indextracking) investment flows no doubt continued to play a major role in these flows. Although this trend appeared to have peaked in early June, there were impressive gains in top-tier technology stocks as they retained their leadership in the US equity market in the past six months. Stocks such as Tesla, Facebook, Amazon, Apple and Netflix were the clear winners.

By comparison, industrial, materials and energy stocks had a very tough six months. Financial stocks also materially lagged the technology sector. As has become a familiar pattern in recent years, the underperformance of industrially-sensitive stocks was essentially due to fears over the resilience of the US economy. In particular, this was sparked by signs of weakening motor vehicle demand and ongoing gridlock within US government. Pre-Brexit uncertainty did not help sentiment in the UK.

Europe was the best performing region in the second quarter, rising 7.7% (in US dollar terms). The weakest return was from North America, which declined -3%. Japan returned 5.2% (in US dollar terms). Emerging markets were up 5.5% (in US dollar terms). The fund continues to be overweight North America and marginally underweight Europe.

Among the global sectors, healthcare (+6.6%), industrials (+5%) and information technology (+4.6%) generated the best returns. The worst performing sectors were energy (-5.7%), telecoms (-2%) and materials (2%). On a look-through basis, the fund was positively impacted by its overweight position in information technology and underweight in energy and telecommunication.

Egerton and Conatus were the top performers for the quarter, with alpha of 4% above the market. Egerton benefited from holdings in Ryanair (+23.6%), Constellation Brands (+20%) and Safran (+15.8%). Conatus benefited from holdings in PayPal (+25%), Aena (+18%) and AIA Group (+17.8%). Ryanair reported a 6% rise in earnings despite a difficult trading environment. Safran cuts its bid price for acquiring Zodiac Aerospace and Constellation Brands raised its full-year profit forecast. PayPal’s revenue grew 17% year-on-year and the company announced stock buybacks. Aena announced profits significantly above what the market had expected. AIA Group reported record new business growth of 55% for the first quarter of 2017.

Detractors for the quarter were Contrarius and Vulcan. Contrarius’ energy exposure drove its underperformance as the oil price dropped from $52 to $46 by the end of the quarter. Vulcan was held back by its holdings in National Oilwell Varco (-17.7%) and Discovery Communications (-11%). National Oilwell Varco suffered on the back of the oil price decline and Discovery Communications was hurt by fears over future advertising revenue.

Outlook
We believe that conditions favour continued resilience in US consumer spending and a modest but synchronised upturn in global growth later this year and into 2018. That said, we believe that the outlook for inflation, and central bank actions, will be vital to understanding market direction in the near future.

Portfolio manager
Tony Gibson as at 30 June 2017

The fund advanced 7.4% for the quarter, against the benchmark MSCI All Country World Index (ACWI) increase of 6.9% for the same period. For a rolling 12-month period, the fund's return of 9.7% is behind the benchmark's 15.0%.

The first quarter of 2017 was another good one for global asset returns, specifically equities. Emerging markets were particularly strong, supported by a declining US dollar. Developed markets also delivered healthy returns. Equity markets in the US continued to benefit from the Trump reflation trade early on in the quarter. However, president Trump's failure to enact the Obamacare replacement bill saw markets ease during March on concerns about his ability to move forward on infrastructure and tax reform. Economists are however raising their growth forecasts for Western Europe and Asia, and with a probable return to growth of around 3% in the US, markets had a lot to be optimistic about.

North America was the best performing region by a large margin, rising 3.5% (in US dollar terms). Asia ex-Japan was the weakest region, declining 2.7% (in US dollar terms). Japan was marginally negative (declining 0.2%), while Europe declined 0.4% (both in US dollar terms). Emerging markets outperformed developed markets by 5.1% (in US dollar terms). The fund's regional positioning had little impact on performance over the quarter.
Amongst the global sectors, financials (+14.1%), energy (+6.7%) and materials (+2.7%) generated the strongest returns. The worst performing sectors were real estate (-6.5%), consumer staples (-6.0%) and healthcare (- 5.6%). On a look-through basis, the fund was positively impacted by its sector positioning, principally from an overweight position in information technology and an underweight position in energy, telecommunications and financials. Low exposure to healthcare had a small negative impact.
The underlying funds made a positive contribution to performance over the period, mostly outperforming their respective benchmarks.

Egerton Capital returned 10.0% over the quarter and, given its weighting in the portfolio, made the largest contribution to the fund's performance. Egerton benefited greatly from its holdings in Tencent (+17.4%), Charter Communications (+13.7%), Airbus (+13.5%), Facebook (+23.5%) and S&P Global (+22.0%). Generally, Egerton enjoyed excellent returns from many of its holdings, with only a handful of detractors.

Coronation Global Emerging Markets underperformed its own benchmark for the quarter, but also made a strong contribution to the fund. Positions in Naspers (+14.9%), JD.Com (+22.3%) and Heineken (12.0%) were amongst the key contributors, while the performances of Magnit (-13.5%) and Tata Motors (-1.2%) detracted slightly.

Conatus Capital returned 8.3% for the quarter and therefore generated alpha for the fund over the period. Its top performing holdings include Adidas (+18.7%), PTC Inc (+13.6%), Sony Corp (+15.3%) and Activision Blizzard (+38.9%), but many of Conatus's middle weighting stocks also performed quite well.

Positive contributions to performance also came from Maverick Long Only and Cantillon Global Value over the quarter. Both funds comfortably outperformed the fund's benchmark. Maverick benefited from its exposure to the IT sector, but its position in Sabre Corp disappointed with a decline of 14.5% over the quarter.

Detractors to performance over the period include Magellen Global Fund, which marginally underperformed the MSCI ACWI. Magellen's top position, Apple, delivered a sensational return of 24.6% over the three-month period but a number of its smaller positions generated negative returns, including Tesco (-10.3%) and Qualcomm (-11.2%). By mid-March we introduced a new fund, Lansdowne Developed Markets, to the portfolio. Given choppy markets at the time, the fund also detracted somewhat from performance over this short period.

Outlook
The medium-term outlook points towards a modest upturn in global economic activity, led by the US and supported by continued momentum from China and India. Fears of a self-feeding disinflationary environment have also greatly receded. This should be supportive of base metals, which after the recent upswing in commodity prices, may add to input price pressure. However, there are a number of uncertainties that could vex markets in the short term including, Mr Trump's strategy on taxation and global trade as well as the imminent Brexit negotiations. US equities are fully priced and compared to long-term averages could even be regarded as expensive, whereas Europe and emerging market do offer some value. Many fundamental demographic and social changes are currently unfolding and the ability to apply a calm perspective coupled with good stock picking should generate strong alpha.

Please note that the commentary is for the US dollar retail class of the fund. The feeder fund is 100% invested in the underlying US dollar fund. However, given small valuation, trading and translation differences for the two funds, investors should expect differences in returns in the short term. Over the long term, we aim to achieve the same outcome in US dollar terms for both funds.

The fund declined 2.4% for the quarter, against its benchmark advance of 1.2%. For the rolling 12-month period, the fund’s return of 1.2% has lagged that of the benchmark’s 7.9%.
The election of Donald Trump as President of the United States in early November took many by surprise and set off a strong rally in the US equity markets, especially amongst the energy, materials and financial sectors. This was driven by his campaign promises of fiscal stimulus through tax cuts, increased infrastructure and defense spending and also other measures including the lifting of restrictions on energy production and deregulation in the banking sector amongst others.

The US Federal Reserve also delivered on the widely anticipated 0.25% rise in interest rates in December 2016 and indicated that it may raise rates another three times in 2017. The strengthening in the US dollar meant that good equity market performance in Europe and Japan was somewhat muted in the fund’s base currency (US dollar).

North America was the best performing region by a large margin, rising 3.5% (in US dollar terms). Asia ex-Japan declined 2.7% (in US dollar terms) and was the weakest region this quarter. Japan was marginally negative, declining 0.2%, while Europe declined 0.4% (both in US dollar terms). Emerging markets underperformed developed markets by 5.8% (in US dollar terms). The fund’s regional positioning was a drag on performance over the quarter.
Amongst the global sectors, financials (+14.1%), energy (+6.7%) and materials (+2.7%) generated the best returns. The worst performing sectors were real estate (-6.5%), consumer staples (-6.0%) and healthcare (-5.6%). On a look-through basis, the fund return was negatively impacted by its sector positioning, principally being underweight in financials and energy and an overweight position in information technology. Low exposure to healthcare and utilities had a small positive impact.

In general, the fund's underlying managers have lagged their respective benchmarks this quarter, two of which had a very difficult three-month period.

Maverick Capital declined 4.1%, with the main contributors being large positions in Anheuser-Busch InBev (-18.5%), Universal Health Services (-13.6%), Sabre Corp (-11.0%) and Seven & I (-6.4%). Positions such as Commscope (+23.6%) and Waste Connections (+5.5%) performed well, but did compensate for the key detractors.

Conatus Capital had a weak quarter, driven by top holdings such as Constellation Brands (-7.7%), Paypal (-3.7%), Activision Blizzard (-18.5%) and Facebook (-10.3%). Both Maverick and Conatus have excellent long-term track records and we remain confident in their ability to deliver going forward.

Cantillon Capital also delivered negative returns over the period, bringing to a close a somewhat disappointing year. Baidu (-9.7%), Willis Towers Watson (-7.5%) and Reckitt-Benckiser (-5.2%) were the main contributors, although a number of their smaller positions also delivered negative returns for the period.

On the positive side, Egerton Capital enjoyed a good quarter, outperforming the index thanks to positions in Airbus (+16.7%), Safran (+8.0%), and Charter Communications (+6.7%).

After a poor run of form, Vulcan Value Partners delivered strong returns as the likes of Swiss Re (+10.1%), Anthem Inc (+15.3%), Axis Capital (+20.8%) and State Street Corp (+12.25) all had a strong quarter on the election of Mr Trump.

Outlook
The global economy and markets enter into 2017 in a considerably better position than this time last year. The outlook for developed economies has improved, with growth momentum picking up and risk assets rallying since the US presidential election. Markets are indicating that the new US leadership should have a fundamentally positive impact on the economy. A faster growing US economy is good for the global economy, although it will take some time before its impact is felt outside of their country. In Europe, the year ahead is filled with elections and referendums that may reshape the political landscape. Together with the start of the long awaited Brexit negotiations in March this year, these risks should not be ignored. Emerging markets face near-term challenges as the stronger US dollar leads to capital outflows and rising interest rates. The one risk is that Trump’s views on globalisation and any strong action in this regard may cause further global stress.