Despite the ongoing bouts of trade tensions between the US and China (to say nothing of the US Federal Reserve’s decision to raise interest rates for the third time this year), US equity markets posted meaningful positive returns over the past quarter. In the latter sessions of the third quarter, the S&P 500 and Dow Jones Industrial Average simultaneously closed at record highs, for the first time since the equity rally in January.

Throughout the third quarter, markets were characterised by a continual cycle of impactful style and sector rotations over increasingly short-term intervals; such effects were most acutely experienced during the months of July and September.

Coinciding with this recent softer performance at the fund level, global geopolitical uncertainty has had a disproportionate impact on asset pricing at the market level. Amongst these, concerns around prospective trade wars, as well as the impact of divergent monetary policy on asset prices lack definitive time lines; as such, their effects could extend into the near term.

Performance was mixed across most stock selection criteria throughout the period. While this period of recent fund performance remains out of character with the medium- and long-term track record of the strategy, it nonetheless falls squarely within the expectation and tolerance of the return structure of the strategy. Moreover, we have consistently and transparently emphasised how the investment process may become challenged during episodes when investor risk appetite switches rapidly between risk-on and risk-off environments. While these instances of market structure are infrequent in occurrence, they can nevertheless be variable in duration.

Performance across most of our stock selection techniques was mixed, with price information detracting from the fund’s performance. The analyst sentiment criteria, price arbitrage and sustainable growth component contributed negatively to returns, while company management and dynamic valuation contributed to performance.

Exposure across most sectors has continued to adapt and reflect the changeable dynamic across markets. Overall, the sector positions broadly remained stable during the course of the third quarter. We continue to espouse judicious risk management, in the broader context of active investing, which requires offsetting opportunities against risks inherent in the market.