Adding on weakness, locking in gains
Our focus remains a long-term one with turnover typically relatively low. There was some activity however as we continued to use the share price weakness in US managed care business Humana to add to the position. In terms of sales, we completed our sale of Daiseki, a Japanese waste treatment and recycling specialist on worries over the business’s quality and stock liquidity. We also took advantage of the strength in the share price in Japanese automation business, Keyence, to trim holdings as the share price rally – in our view – left more limited upside to our fair value.
In terms of overall positioning, we retain our bias towards higher quality, sustainable growth companies that can prosper in any near-term economic and policy-driven volatility. We continue to add to positions where we see strong underlying quality and where the market allows us to top-up holdings at more attractive levels. And where appropriate, we have been building positions that offer more defensive revenue streams given the slowdown in economic growth expectations and trimming holdings that have performed strongly and offer reduced upside potential.
Sector wise Industrials, Information Technology, Consumer Discretionary and Healthcare are our main overweights, whilst Financials is a modest overweight. The portfolio is underweight Communication Services, Energy and Consumer Staples.
Whilst there are periods of short-term underperformance, we remain of the view that higher-quality companies should outperform over the long term due to their robust cash flow, focus on improving total shareholder returns and increasing franchise value.
Recession fears misplaced? We think so
Although a number of obstacles to market performance remain in place, our general view remains that talk of a recession this year is misplaced. We believe the key risks continue to be global trade issues, uncertainties around Chinese growth prospects and geopolitical tensions. Meanwhile, central bank actions, as witnessed by the change to Fed policy in the US, could lead to short-term challenges. That said, macro-economic conditions remain fairly balanced, and with profit expectations reduced and valuations back at more attractive levels, we still feel that there is a positive outlook over the medium term for equity markets. We remain vigilant but stay constructive overall.