Performance 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 equi..es 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 deescalation in USChina 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 socalled 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.

Performance 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.

Performance Review:

The Northstar Global Flexible Fund delivered a return of +10.92% for the 3 months to end- March 2019. The Fund’s composite benchmark, comprised of 60% MSCI World Index and 40% Bloomberg Barclays Global Aggregate Bond Index returned +8.79%, while the average fund return in the Morningstar EEA USD Flexible category was +6.78%.

For the 12 months to end-March 2019 the Fund returned +7.53%, which compares more favorably to the composite and peer group returns of +2.49% and -0.13% respectively, ensuring the Fund retained its top quintile ranking versus peers.

Risk appetite returned during the quarter following a torrid end to 2018. Global equities rallied strongly, with the MSCI World Index (+12.48%) led by cyclical sectors, notably Information Technology (+19.2%), Industrials (+13.8%) and Energy (+13.5%). Defensive sectors such as Health Care (+7.5%) and Utilities (+9.3%), nevertheless delivered respectable returns.

Financials (+7.6%) continue to lag, having underperformed the broader market by over 1400bps over the passed 12 months, weighed down by the poor performance of the MSCI Global Banks sub-Index, which returned -14.98% over the past 12 months.

Equity selection remains a key driver of returns. The Fund’s underlying equities delivered a return of 16.7% for the quarter, more than 400 bps ahead of the MSCI World Index. Philip Morris (+34.1%), Alibaba (+33.1%) and British American Tobacco (+32.7%) were the best performing holdings over the 3 months, with Danaher (+85bps), Moody’s (+79bps) and LVMH (+62bps) offering the best attribution, which takes into account the Fund’s weighting relative to the benchmark.

WPP (-3.8%), Berkshire Hathaway (-1.6%) and Medtronic (+0.7%) were the worst performing holdings, with the largest negative attribution coming from Walt Disney (-56bps), Berkshire Hathaway (-50bps) and Medtronic (-46bps).

Fund Positioning:

We increased the Fund’s allocation to equities early in the quarter, owing to a larger intrinsic value discount following the global equity sell-off in 4Q18. We also exited the Fund’s bond holdings entirely in January, reflecting our view that, following a rally in 10 Year US Treasuries from 3.2% to 2.5% in the final two months of 2018, long bond yields had deviated meaningfully from our assessment of fair value. We have subsequently reestablished some short duration bond exposure.

Following poor organic revenue growth reported by Publicis, we made the decision to sell the Fund’s remaining holding in WPP. The Publicis result confirmed our concerns that the headwinds facing advertising industry incumbents have not relented and that the shift to digital advertising is likely to continue to undermine the traditional agency model and that the rise of digital platforms, notably Facebook and Google, represents a permanent impairment to the source of their competitive advantage, namely the negotiating power they held in a traditional fragmented media landscape.

Portfolio Review:

The Northstar Global Flexible Fund delivered a return of +5.4% for the 3 months to end- September 2018. The Fund’s composite benchmark, comprised of 60% MSCI World Index and 40% Bloomberg Barclays Global Aggregate Bond Index returned +2.9%, while the median fund in the Morningstar EEA USD Flexible category returned +1.1%.

Since inception on 1... June 2017, the Fund’s annualised return of +8.6%, places it in the top decile of Global Flexible funds, inline with the ranking achieved over the past 12 months, wherein the fund returned 9.4%.

Emerging markets came under further pressure during the quarter, with currency weakness, notably of the South African Rand (-2.9%) and Brazilian Real (-1.3%) versus the US dollar, once again contributing to their poor performance. The MSCI Emerging Markets Index declined -1.0%, while developed markets, notably the US (S&P500 + 7.7%) and Japan (Nikkei +9.4%) continued their strong run.

Interest rate sensitive asset classes struggled with the Bloomberg Barclays Global Aggregate Bond Index down 0.9% in the quarter and the S&P Global REIT Index (0.2%) delivering only a marginally positive return.

The Fund’s relative lack of exposure to sectors deemed to exhibit poor fundamentals, such as Utilities (+0.2%), Energy (+0.05%), Materials (-1.2%) and Real Estate (-1.6%) versus sectors we consider to have superior fundamentals, such as Health Care (+11.1%) and Technology (7.9%), boosted performance.

Stock selection was a key driver of returns over the past three months, with the Fund’s socalled "hit rate" - the number of holdings outperforming the equity benchmark - reaching 73%. Blackstone (+20.3%), Thermo Fisher Scientific (+17.9%) and Delta Air Lines (+17.5%) delivered the best absolute returns, with Naspers (-15%), Alibaba (-11.2%) and British American Tobacco (-7.6%) faring worst.

Portfolio Positioning:

The Fund’s overall equity exposure was maintained at approximately 67% during the quarter, ahead of the benchmark weight of 60% but down from the peak of 73% in October 2017. Equity allocation remains a function of (and continues to be supported by) the bottom up intrinsic value discount of the Northstar Global Equity Buy List.

We exited Apple, one of the Fund’s core long term holdings, during the past quarter.

As shares in Apple had been trading above our Base Case intrinsic value estimate, we consistently reduced exposure to the company over the course of the past year. Having recently moved through our Bull Case valuation, which gave credence to higher handset shipments and average selling prices, we felt it prudent to sell the remaining holding.

The Fund retains a meaningful underweight position in global bonds, with short duration US Treasuries and cash making up the bulk of the non-equity exposure, both offering diversification and a useful buffer against equity market volatility