Global Equities

July update – BMO Responsible Global Equity Fund

Nick Henderson offers insights into the performance of BMO’s Responsible Global Equity Fund in July and discusses recent activity and portfolio positioning.
August 2019

Nick Henderson

Director, Global Equities

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The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Screening out sectors or companies may result in less diversification and hence more volatility in investment values.

Nick Henderson offers insights into the performance of BMO’s Responsible Global Equity Fund in July and discusses recent activity and portfolio positioning.

Positive returns but performance lags benchmark

Sector-wise the tailwind from zero Energy exposure and overweight Information Technology was largely offset by underweights in the outperforming Communication Services and Consumer Staples sectors with the single largest unowned detractor from performance being Alphabet, who reported strong earnings during the month but remains an unowned name on the grounds of ongoing concerns around privacy and monetisation of personal data.  From a stock perspective, managed health care company, Humana, gained on strong results demonstrating membership growth.  Manufacturer of integrated circuits, TSMC, gained on strong momentum and a positive outlook statement, whilst stronger than peer group revenue and profitability resilience led to auto part company, Aptiv, performing well.  Life sciences business, Metter-Toledo, gave back some of the very strong gains seen in June, whilst application software heavyweight, SAP SE, reported some challenges to its licence revenues at its H1 results.  Adding to the theme of sector rotation, industrial gas business, Linde, was weaker after its strong H1 share price gains.

At a glance
  • Lagged benchmark during July but remain comfortably ahead year-to-date
  • Positive earnings and Federal Reserve rhetoric help shares gain ground
  • Being underweight communications services and consumer staples dragged on relative returns
  • Mettler-Toledo gave back some of its recent gains, Humana rose on membership growth
  • Adding to Acuity Brands whilst continuing to trim Union Pacific

Risk Disclaimer 

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Screening out sectors or companies may result in less diversification and hence more volatility in investment values.

Investors switch off from Acuity Brands, so we move to take advantage

After its share price fell following a recent results update, we took the opportunity to add to our holding in Atlanta headquartered lighting specialist Acuity Brands.  This was funded by trims to US railroad operator Union Pacific where we hold the view that improvements in operational performance are increasingly factored into the share price at these valuation levels. Valuation concerns also prompted our decision to trim US speciality retailer Tractor Supply, where comparative same store sales have been very strong given internal initiatives to drive increased footfall, but again these operational strengths look factored into a more elevated valuation now. The proceeds from this trim were directed towards apparel and footwear company VF Corporation, who continues to execute its business strategy well, but valuations are more attractive in our view.

Broader positioning remains unchanged, with an ongoing 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, Information Technology, Industrials and Healthcare are our main overweights, whilst Financials is a modest overweight. The portfolio is underweight Communication Services, Energy and Consumer Staples. At the regional level, Emerging Markets, Japan and the UK are our biggest overweights, with the U.S. our largest underweight.

 

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Volatility creates buying opportunities

July saw markets continue to grind upwards thanks to a combination of stronger earnings reports and more dovish Federal Reserve signals, culminating in the interest rate cut in the United States at the end of the month.  Trade issues continue to add to overall market volatility but the relative attractiveness of equities as an asset class, part of the reason behind our positive equity market view this year, remained in evidence.  We continue to be vigilant – a combination of valuation levels and uncertainty over the strength of corporate earnings in the second half of the year given mixed signals about economic activity.  Overall, though, we remain constructive towards global equities and see scope for further gains before year end. 

Discrete performance vs. benchmark -12 month rolling (EUR, net of fees)
Percentage growth % 18/19 17/18 16/17 15/16 14/15

Responsible Global Equity Fund

10.30

15.91

11.42

-3.42

34.45

MSCI World

8.89

12.74

10.14

-1.65

27.07

Discrete performance vs. benchmark – 12 month rolling (US$, net of fees)
Percentage growth % 18/19 17/18 16/17 15/16 14/15

Responsible Global Equity Fund

4.96

15.03

17.47

-2.25

11.03

MSCI World

3.62

11.88

16.12

-0.46

4.93

Source: BMO Global Asset Management Limited as at 31-July-19. Share class I. Benchmark: MSCI World. The discrete annual performance table refers to 12-month periods, ending at the date shown. Figures subject to rounding.

Past performance should not be seen as an indication of future performance. Changes in rates of exchange may also reduce the value of your investment.

 

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