Review

The Rootstock Fund delivered top-quartile performances for the three- and 12-month periods, with corresponding returns of 6.4% and 9.5%. Over the 12-month period, the Fund beat its CPI+5% benchmark, presently 9.1%, while the average peer group return was 2.2%. There have been a number of significant political, market and economic events during the last quarter, many of which are likely to have lingering effects on equity markets. We discuss a few of the more notable events below. The present global investment environment, marked by persistently low interest rates and fears of an impending economic slump, makes finding high-quality companies, particularly those trading at reasonable valuations, a progressively more challenging task. For reference, only two sectors in the MSCI World Index, viz. Energy and Financials, are currently valued below their ten-year average price-earnings multiples. Energy looks fully valued, despite low multiples, on account of a rapidlyshifting market structure, while banks have secular balance sheet difficulties brought on by a decade of unprecedented monetary policy. High equity valuations, measured on a historical basis, along with deteriorating global growth prospects, make for capricious markets. Due to the present market volatility, the Rootstock Fund has maintained its relatively conservative equity exposure, 78% at quarter end. Our cash position provides meaningful optionality should short-term negative news flow provide an opportunity to buy high-quality companies that meet our fair value criteria. Rising uncertainty makes liquidity valuable. Taking into consideration our guarded stance, we remain optimistic on the Fund’s prospects.

Market Commentary

Global GDP growth forecasts continue to drift lower. The World Bank’s expectation for global real GDP expansion in 2019 has been revised down to 2.6%, from a 2.9% forecast in January. US-Sino trade tensions, Brexit and rising antagonism between Japan and South Korea threaten to upend the established global business environment, hurting investment. In the absence of progress in the USSino trade talks, the World Bank expects to slash its 2020 real global GDP growth forecast by a full percentage point to just 1.7%. Major central banks, led by the US Fed and ECB, have tried to counter trade headwinds with interest rate cuts. This monetary stimulus has yet to offer a discernable offset to the strangling policy uncertainty spreading across the world. A deceleration in global investment and the ensuing decline in business confidence may portend an economic contraction. Despite the gloom, China posted real GDP growth of 6.2% for the second quarter of 2019. This is however the lowest rate since 1990, but still healthy for a country that is transitioning from a production to consumption-driven economy. Indeed, many indicators of global macroeconomic expansion make for unpleasant reading. Purchasing Managers Indices (PMIs), a gauge of the direction of growth in the manufacturing sector, a bellwether for economic growth, have fallen, globally, below their neutral 50-point mark. The US PMI, long the exception, has joined other major economies’, including China, Germany, England, Japan and South Korea, in signaling contraction. The US PMI fell to 49.1 in August, the lowest level in three years.

A recent attack on Saudi Arabian oil facilities, allegedly orchestrated by Iranian-backed Yemeni rebels, took out roughly 5% of global oil supply. Fortunately, no oil shock is likely; the OPEC cartel has significantly diminished relevance in the global oil industrial complex, brought about largely by US onshore shale. While its broader economic impact may be limited, the attack does highlight the emergent theme of a fracturing global order. The US, now a net exporter of oil, is likely to limit its involvement in future Middle Eastern conflicts. The poor economic data have not yet noticeably filtered into equity markets. For reference, the MSCI World Index, a measure of global equity markets, has produced a US-dollar total return of 0.7% for the quarter and 2.4% for the 12-month period. Concerningly, consensus-earnings expectations have declined across the globe over the past year, with emerging -market earnings expectations marked down some 20%. Developed-market earnings expectations have been revised lower by a relatively modest 6%. While equity markets are not valuated at historic highs, they are on the more-expensive side, and with limited price action and falling earnings, are growing more expensive still.

On the local front, South Africa faces multiple, well-documented crises. Despite a fairly open economy, the country has seen little benefit from the robust global growth of the last decade. Asymmetrically, an extended global slowdown is likely to have a confounding impact on the already moribund economy. Poor policy decisions, the ill-conceived and fiscally profligate National Healthcare Insurance plan, merely the latest own goal, continue to starve the economy of much-needed risk appetite and, accordingly, investment. According to the Bureau of Economic Research, the Business Confidence Index, where 50 indicates a neutral outlook, stands at 28, the worst level since 1999. Not even during the height of the global financial crisis in 2009 have executives been as pessimistic. In a low-growth environment with government policies hostile towards business, developments with workable economic returns are scarce. One only needs to glance at the performance of corporate South Africa, proxied by the JSE All Share Capped Index, which limits the weight of dual-listed companies, that has returned, in rand, 0.4% for the last year, and a compounded annual rand return of 5.1% for the past five years. Barring wholesale structural reforms, including improved governance and rational, factbased policy making, we see little opportunity for meaningful investment return. Despite short-term headwinds abroad, growth prosepects remain more healthy than in South Africa. Consequently, the Fund will remain largely invested in global equity markets, which are likely to deliver longer-term performance in excess of the eroding South African equity universe.

Portfolio Commentary

The Fund’s equity exposure declined marginally from 80% to 78% at the end of June. Foreign equity exposure, measured as a percentage of our total equity holdings, remained unchanged at approximately 96% during the quarter. Naspers’ proposed unbundling and listing of a 26% stake in Prosus on the Euronext in Amsterdam was successfully implemented in September. We maintain our reservations on the merits of the scheme. Management claim that access to an enlarged foreigninvestor base and the inclusion of Prosus in international indices will serve to reduce the perennial discount to nett asset value (NAV) at which Naspers trades. Before and after the Amsterdam listing, Naspers’ discount to NAV was roughly 35% and at 30 September 2019, 42%, respectively. Prosus trades at a 25% discount to NAV at quarter end. So far, the transaction, which came at considerable cost, has yet to unlock any real value. While management’s attempts to reduce the discount are laudable, we advocate improved disclosure and the abolition of the Board’s super-voting rights as the easy path to value unlock. For now, we reserve judgement on the ultimate outcome, however, as the Prosus listing may lay the groundwork for further corporate action, with the ultimate break-up of the group a possibility.

In the short term, the separate listing of Naspers’ Classifieds division, OLX, is likely. With no meaningful difference in the underlying assets between Prosus and Naspers, the latter offers significant value. Over time, as the non-Tencent assets turn meaningfully profitable, we hope, the discount is likely to markedly unwind. We remain patient. In other corporate undertakings, after a failed attempt in July, AB InBev successfully listed its Asia-Pacific (APAC) operations in Hong Kong. The subsidiary, Budweiser Brewing APAC Limited, produces, imports and sells more than 50 brands of beer in the greater South East Asia region. While retaining control, AB InBev raised almost $6 billion from the sale of a 13% stake, implying a market value of some $44 billion for the fast-growing APAC business. Together with the July sale of its entire Australian business to Asahi, generating net proceeds of $11 billion, the $17 billion proceeds will be used to pay down some of the AB InBev parent company’s roughly $112 billion of debt. Despite AB InBev’s cash-generative nature, investors’ legitimate concerns over its large debt pile have weighed on sentiment. With net debt-to-EBITDA, a measure of debt serviceability, below the company’s 2020 target of four times, market sentiment may recover.

During the quarter we made several adjustments to the portfolio’s composition. Most notably, our long-term holding in British American Tobacco (BATS) was completely sold. Since our initial investment in 2009, the stock has yielded an annual compound total rand return of approximately 14%. While the business remains highly cash-generative and attractively valued, growth prospects are somewhat uncertain. Any meaningful forthcoming investment return is premised on a rising valuation multiple, presently 10.4 times. In our considered view, a progressively more stringent regulatory environment and rapidly-falling cigarette volumes are likely to keep its multiple depressed for significantly longer than our investment horizon. Globally, excise duties continue to rise, driving up cigarette prices to excessive levels in many jurisdictions. Governments, reliant on the significant revenue generated from cigarette tax seem to be ignorant to the growing defection to illicit products. At the margin, reduced smoking is a meaningful headwind to Big Tobacco’s earnings prospects, particularly when considering the rapidly-withering Baby Boomer smoker demographic. For reference, cigarette volumes in the lucrative US market are falling much faster than previously expected. In 2015, when BATS bought the remaining 58% of Reynolds American that it did not already own, it assumed US cigarette volumes would decline annually by about 2%. The actual experience has been in excess of a 5% annual decline. Most recently, volumes have fallen by close to 8% year-on-year. While tobacco companies maintain that these externally-calculated figures are overstated, the fact remains that the decline in cigarette volumes in their most profitable market is accelerating.

To offset the decline in traditional cigarettes, tobacco companies are investing heavily in so-called Next Generation Products (NGPs). NGPs account for only about 5% of the total nicotine-consumption market, but are growing at roughly 50% per annum. However, the space is proving difficult for Big Tobacco, with increased competition from outside entities. Notably Juul, the dominant e-cigarette brand in the US with some 66% market share, was founded in Silicon Valley only four years ago. The regulatory and distributive moat that BATS previously enjoyed looks to have been breached. Moreover, enormously negative recent press has dented NGP growth. Even accounting for smokers who transition to NGPs, the tobacco market continues to contract ever more rapidly. Another longerterm concern is the increased Environmental, Social and Governance (ESG) pressure placed on large global-investment mandates. In time, a large pool of capital is likely to eschew companies that have products deemed socially undesirable, BATS not excepted. Increased regulatory attention on Big Tobacco, epitomised in the NGP market, forms part of the growing ESG lobby. Thus, despite its optically attractive valuation, the steady attrition of its most profitable business may place BATS on the wrong side of history. Other notable portfolio changes include the complete disposal of our resource holdings, Anglo American Platinum and BHP. These stocks realised exceptional rand-based total returns of 102% and 17%, respectively, over the past 12 months. Both stocks, after a multi-year holding period, reached our estimate of their fair values during the quarter. Being highly cyclical businesses, particularly given the global growth backdrop, we deemed it prudent to take profit. We believe the capital will be better deployed elsewhere.

On the capital-deployment front, Microsoft is an exciting addition to the portfolio. It is a business in the midst of a fundamental transition with an extremely impressive management team. The successful transition to a Software-as-a-Service model for Microsoft’s Office, Dynamics and Xbox divisions portend a growing customer base, creating scope for tremendous top line growth. In addition, margin expansion, largely driven by the success of its Azure cloud platform, should see meaningful profit growth over the next few years. The company is a distinguished business-productivity application provider, whose relevance has not waned with time.

Concluding Comments

The global mood is decidedly gloomy. While contracting industrial activity, slowing economic growth, political uncertainty and possibly overextended equity market valuations are cause for concern, highquality businesses will continue to thrive, as they have done in times much more precarious than the present, over the long term. We maintain our steadfast focus on valuation and are incessantly probing our portfolio holdings for hidden risks. Our process has served us well in the past and provides us with a rational decision-making framework when dealing with emotionally-charged news flow. We believe high-quality businesses are invariably run by high-quality management teams, and that industries with favourable operating dynamics offer some comfort in this disorderly world. Falling interest rates should filter through into the global economy in the next few quarters, helping to offset the supply shock created by trade tensions. Investors may take some solace that rate cuts tend to support equity valuations in the short term. Global growth should recover over time, even in the absence of a resolution to the US-Sino trade dispute, as businesses adapt to the new regime, shifting production and reworking supply chains. We will stay true to our philosophy of investing in highquality, growing companies, and, importantly given the current ambiguous environment, not overpaying for assets. The Fund owns a portfolio of structurally-profitable businesses with exciting prospects, which should stand us in good stead. Please feel free to get in touch if you have any questions regarding the Rootstock Fund and its holdings. We maintain our open-door policy and are always available to assist. As ever, we strive to preserve and grow your, and our, capital as best we can. We thank you for your continued support.

Review

How quickly a decade has flown by. At the end of June 2019, the Rootstock Fund celebrated its tenth anniversary! The Rootstock team has much to be proud of. We are most pleased with the Fund's top quartile performance. For the ten years ending 30 June 2019, we have achieved a compounded annual return of 15%.

Market Commentary

There is a lot of noise in global markets. The US-Sino trade war rages on. In the latest development, the US has flexed its muscles on claimed intellectual property abuses, restricting several international companies, most notably China behemoth Huawei, access to US-developed technology. Worryingly, long-time US allies are becoming ever more entangled in growth-stifling tariff antagonism. Trade disputes may be a longer-term phenomenon.

The regulatory scrutiny on big tobacco lingers, with market commentators speculating over an impending ban of tobacco products in the US. Opinions, based on few hard facts, range from substantial product-specific bans to total embargos. The large global technology companies have also come under regulatory scrutiny, primarily concerning antitrust.
In macro news, the US Fed has indicated, conspicuously, a muted outlook for interest rates. Most interestingly, the Fed has not lowered rates since the Global Financial Crisis of 2008. The present interest rate regime, a gradual rise in rates since late 2015, is likely to change. Rate cuts, in the short term, may aid equity returns. For reference, Goldman Sachs Global Investment Research demonstrates that the historical median S&P 500 twelve-month return subsequent to the US Fed changing its interest rate regime (read: an initial cut in rates), has been 14%. In this scenario, so called bond proxies, including Healthcare and Consumer Staples, have tended to outperform the S&P 500 index, while highly-rated sectors, including Communication Services and Technology, have underperformed.

Locally, politics continue to dominate headlines. The national election, marked by a tellingly-low turnout, has come and gone. The size of the cabinet has been slightly reduced and some rotten wood has been cleared. Heartening speeches have been made. Unfortunately, the endemic structural inefficiencies suffocating the beleaguered economy are no closer to remedy. Instead, intensifying political infighting and a lack of accountability frame the narrative. Years of mismanagement and institutional decay are borne out in the latest GDP growth figures, with the economy contracting by 3.2% for the first quarter of 2019.

In South Africa, there are no winners. The no-growth environment will continue to squeeze company margins. Consumers remain unable to bear the pass-through of rising input prices. The costs of persistent economic attrition continue to weigh on local shareholders. Despite some optically attractive ratings, South African market valuations do not reflect the dismal economic outlook. Although we continue to monitor several best-in-class local businesses that fit our investment philosophy, our focus is on international markets.

In all the turmoil, Rootstock's focus on high-quality companies at attractive valuations endures. We own businesses that are likely to grow profits regardless of trade wars or regulatory scrutiny. We are however cognisant of undesirable short-term news flow, especially regarding regulation, and the potentially depressive effect such attention may have on valuation multiples.

Portfolio Commentary

The Fund's equity exposure rose from 77% at the end of March 2019 to 80% at the end of June 2019 as several new opportunities were added to the Fund. Foreign-equity exposure, measured as a percentage of our total-equity holding, is 96%.
New additions to the portfolio during the quarter include Inditex, Monster Energy, S&P Global and the Walt Disney Company. Inditex is the owner of fast-fashion retailing-pioneer Zara. It is a best-in-class operator with an unmatched supply chain and attractive growth prospects. Monster Energy is a global energy drinks manufacturer and distributor. The energy drinks category is one of the fastest growing beverage categories globally, with Monster and Red Bull increasingly dominating the global market. Smaller regional players are unable to match the bottling and distribution network that Monster's largest shareholder, Coca Cola, gives it access to.

S&P Global, a diversified financial services provider, has a durable moat and is attractively valued relative to peers. During the past decade, non-core assets were sold, creating a focussed financial services business. S&P Global's four main businesses include its Ratings Agency, providing assessments of corporate and government debt, Indices, selling S&P500 and Dow Jones indices to tracking funds and other market participants, Platts, the leading oil-and-general commodity pricing and index service provider, and Market Intelligence, a financial data-terminal provider similar to Bloomberg. The businesses are all highly profitable with commanding market positions and growth prospects.

Lastly, we also took a small stake in the Walt Disney Company due to its newly-launched video-on-demand streaming service. The attractive new model provides hitherto incomparable access to a peerless content library. The launch of the services will have a negative impact on short-term profitability but should handsomely reward investors in the future.

Following the re-entry of Amadeus IT Holdings to the portfolio in Q1 2019, we increased its portfolio weight from roughly 3% to 5%.

We reduced British American Tobacco's (BATS) portfolio weight from 7.5% to below 5%. The growth path for the large tobacco companies, Next Generation Products (NGPs, the collective term for vapor and heat-not-burn tobacco delivery systems) has dimmed under regulatory uncertainty and weightier competitive forces. While still a small part of the industry, NGPs are its growth engine, yet have proved less predictable than the traditional combustible business. The extensive regulatory scrutiny, abetted by adverse media attention, has further-eroded investor sentiment. We are comfortable with BATS' ability to grow revenue and profits over time but acknowledge that the path may be bumpy. To manage this likely volatility, we have reduced the Fund's exposure.

We sold Coronation Fund Managers, realising a reasonable return over a short period of time. Although the business is easy to understand and highly profitable, Coronation's high market share and poor short-term client returns, reflected in a lackluster half-year result, furnished us with sufficient evidence that asset flows would remain weak.
Clientèle Limited, a long-term holding in the Fund, was sold. This decision was not taken lightly. Clientèle is well managed and highly-profitable. Its dividend yield alone is attractive. Unfortunately, Clientèle's operating environment continues to deteriorate rapidly. Policy holder disposable income is under significant strain, with policy lapses on the rise. Moreover, the competitive landscape has changed considerably. The balance of distribution power has shifted to the primary-bank account providers, Capitec and FNB. Both have entered the funeral cover market with near zero-cost distribution through an unmatched branch footprint and frictionless app-based delivery. Capitec concluded in excess of 500,000 policies in its first nine-months of operation. Clientèle, for reference, has approximately 900,000 in-force policies, the product of decades' work.

Concluding Comments

The team has done a wonderful job identifying exciting investment prospects that are consistent with our investment philosophy. Pleasingly, the quality and diversity of the portfolio continues to improve. The Fund owns high-quality businesses that, irrespective of short-term macroeconomic events, will reward investors, on balance, over longer periods of time. The past ten years have been most rewarding. The team has gained much experience that will stand us in good stead. May the next decade bring us all continued prosperity.

Review

The Rootstock Fund delivered a top-quartile performance for the one-year period ended 31 March 2019, with a return of 15.8%. This performance masks the pandemonium in financial markets during the past twelve months. At the end of 2018, the Fundfs one-year performance was negative 4.3%. The dramatic reversal can be attributed to a recovery in some of our large holdings and several investment views coming to fruition. Over the longer term, the Fund maintains its top-quartile above-benchmark performance. This is detailed on page three.

Our work is never complete. The investment team has undertaken an in-depth review of all our holdings, ensuring they have the business characteristics and growth prospects we desire and are free from major capital-destroying company-specific risks. Valuations, a critical component of our investment process, have been reviewed and stress tested. Moreover, we continue to debate and, where necessary, adjust weights of constituents to manage the imperceptible risks concealed in the structure of our portfolio. This process leaves us satisfied that the Fund is well positioned to deliver, on its mandate of inflation + 5%, real wealth-generation over time.

Market Commentary

On the domestic front, in the build-up to national elections, the South African economy is approaching stall speed. The lack of business confidence, painfully-high real lending rates, the ongoing implosion of state-owned enterprises and policy uncertainty does not portend a rosy post-election outlook, regardless of the outcome. Unfortunately, endemic structural inefficiencies are no closer to remedy and will remain a handbrake on growth.

On the JSE All Share, the pickings are meagre. The investable universe reflects the decade-long deterioration of the South African business environment. There are few stocks that make the grade on both our quality and valuation criteria, with only a handful of South African companies presenting long-term value, in our opinion. For quite some time, the Rootstock Fund has been focused offshore where the opportunity set is deep and rewarding.

Abroad, the much-vaunted synchronised global growth of mid 2017 has dissipated, replaced with the spectre of recession. Economic data points from the US are conflicting. Fears over economic growth have augured Federal Reserve-mandated interest rates to remain flat for the year. Short-term treasury yields now exceed long-term treasury yields, an indicator that has presaged recession in the past. Opposing, real-world economic indicators point to things going quite swimmingly for the consumer. Unemployment is at historical lows, wages are rising, inflation is quiescent, residential building starts are strong and retail sales buoyant. All point to a healthy and growing economy. Curiously, esoftf data on consumer expectations do not align with this seemly lived reality. Market volatility reflects this dissonance.

The US and China remain at loggerheads, despite some moderation of rhetoric in their trade dispute. Brexit, an own-goal by the British ruling class, is an unmitigated mess, reflecting the tormented soul of democracy. Brussels, playing hard ball with the United Kingdom, and increasingly haunted by the rise of EU-wide nationalist sentiment, is not making the withdrawal process any easier. The European Central Bank, rapidly approaching gdo whatever it takesh mode, is trying to arrest painfully-slow economic growth.

Despite the uncertainty, the outlook for investment markets are not as dire as a cursory reading of financial media may lead you to believe. Consumers will continue to consume, technology, presently machine learning and cloud computing, will drive productivity, new business models will disrupt, more people will travel, and standards of living will continue to rise. In the chaos presented in investment markets, our challenge remains to find quality businesses at fair valuations that deliver relevant and profitable goods and services.

Portfolio Commentary

In the presence of slowing global growth, lofty equity valuations and continued market volatility, the Fundfs equity exposure remained unchanged from the 77% at the end of 2018. Foreign-equity exposure, measured as a percentage of our total-equity holding, remains high at 88%.

South Africafs dearth of growth opportunities and poor economics are reflected in market prices. At quarter end, two of our South African holdings, namely Clientele and Pioneer Foods, detracted from an otherwise strong quarterly performance.

A notable event in the quarter was Naspersf proposed unbundling to existing shareholders, and listing 25%, of a European company temporarily named NewCo. NewCo will hold all Naspersf underlying assets excluding Takealot and Media24. Naspersf management argue that such a listing will allow foreign investors and tracking funds, currently restricted from investing in South Africa, to access the counter, serving to reduce the perennial .40% discount to nett asset value at which it trades. While the argument has some merit, the greater part of the discount is likely due to the opacity in the shareholder control structure, rather than a large pool of investors being restricted from investing in Naspers. Whatever the outcome, this is a step in the right direction and lays the ground work for the ultimate break-up of the group. An unbundling of its highly-valuable underlying assets, primarily Tencent, but including its Classifieds, Food Delivery and Payments Processing businesses may be on the horizon.

In other news, the Fundfs holding in MTU Aero Engines, who produce engine components for the enormously-popular Airbus A320 series of aircraft, has been a strong performer, showing remarkable stability in volatile markets. MTU, with a full-capacity order book of some eight years, stands to be a significant beneficiary of airlines increasing preference for Airbus-manufactured commercial aircraft.

We remain cautiously optimistic about the return prospects of the Rootstock Fund. We believe our focused investment philosophy and diligent investment process, which we discussed last year, will protect our investors from potential landmines in financial markets while allowing us to capitalise on exciting opportunities.We highlighted the importance of original research and having eboots on the groundf. A good example of this is a recent research trip to the United States where we met with several companies based in Illinois, Michigan and Ohio. We met with management, inspected production facilities and reviewed product and service offerings. The field research enabled us to identify several new investable opportunities that satisfy our investment criteria. Moreover, the research also confirmed our concerns around a number of industrial companies left behind by technology. Some of their valuations seemed too good to be true.

Portfolio Actions

During the quarter we took several actions to improve the quality and return prospects of the Fund. We sold Transaction Capital at R17.2, for a modest gain on our purchase price of R14.7, enjoying generous dividends along the way. The company will most likely continue generating healthy returns over the next few years. Notwithstanding, we have erred on the side of caution. Recent developments have raised material governance and operating-complexity risks. Firstly, SA Taxi, a subsidiary of Transaction Capital, recently announced that the South African National Taxi Council (SANTACO), the body governing for all major minibus taxi associations, will acquire a 25% interest in the company, partly vendor financed by Transaction Capital with substantial third-party finance from Future Growth (Old Mutual) and Standard Bank. The transaction improves Transaction Capitalfs BEE rating and holds various client-alignment and operational benefits. However, SANTACO has a colourful history and is a questionable long-term business partner. New conflicts of interest also emerge. Secondly, Transaction Capital has a small, although growing, appetite for overseas deals. We believe that capital allocation risk has increased and so too the complexity of the business model. The risks now inherent in Transaction Capital are beyond our tolerance.

Amadeus IT Holdings, a familiar name to our long-term investors, was reintroduced to the portfolio. We previously disposed of our holding in Q3 2017 after the company reached our estimation of fair value. Recent share price weakness, a decline from a high of .82 to .58, has significantly increased return prospects. The company provides a mission-critical ITbackbone to the airline industry and has a 43% global market share for flight bookings. Airlines, online and offline travel agencies use Amadeus to book flights for their clients. In addition, Amadeus offers airlines, airports and hotels the platform to manage their inventory, board passengers efficiently and provides a host of other essential airline-IT services. The companyfs dominant position and indispensable service offering makes it difficult to disrupt. The business is highly profitable with a stable and predictably-growing revenue base. A great business at an attractive valuation.

Lingering in the travel department, Booking Holdings is now one of our largest positions. Booking is the owner of the online hotel-booking platform Booking.com. Like Amadeus, Booking has a dominant market position and offers an efficient, high-quality service. Its revenue growth is underpinned by a growing demand for travel which has historically grown at a multiple of global GDP expansion.

Concluding Comments

The first quarter of 2019 has been a boon for investors. Global equity markets, as measured by the MSCI World Index in US dollar, recovered 12.7% for the quarter. This stands in stark contrast to the 2018 full year loss of 8.2%. Although global economic growth may slow, it nevertheless remains robust by traditional economic measures. South Africa, on the contrary, is struggling to show any signs of meaningful growth, which clearly reflects in the share prices of local companies and the weakening of the rand.

Our focus on international investment opportunities persists, although we selectively invest in high-quality local companies. Indeed, several local prospects appear exceptionally cheap, however, with no avenue to generate meaningful growth along with rising cost pressures, remain value traps.

The Rootstock team maintains its single-minded focus, looking to capitalise on the everevolving investment opportunity set. We diligently adhere to our focused investment philosophy and measured investment process. We pride ourselves on transparency and full disclosure. As a reminder, all our investors have access to the entire, real-time Rootstock portfolio online. Please feel free to get in touch if you have any questions regarding the Rootstock Fund and its holdings. Our door remains open, and we are always available to assist. As ever, we strive to preserve and grow your, and our, capital as best we can. We thank you for your continued support.