Global Equities

Month in focus - BMO Responsible Global Equity Fund

Nick Henderson offers insights into the performance of BMO Responsible Global Equity Fund in September.
October 2019

Nick Henderson

Director, Global Equities

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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.

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

At a glance
  • US interest rate cut helped market rally in September despite worsening economic outlook
  • Overall investors seem to have been taking profits on recent outperforming shares and switching into more lowly-rated shares
  • Underperformance by fund due to impact of profit-taking on key holdings after previous outperformance, with some investor rotation out of growth & quality, and into value.
  • Sale of Union Pacific we now see the benefits of efficiency gains increasingly embedded into the share price, and future
    performance depends on the more cyclical volume outlook.
  • We initiated a position in Becton Dickinson following our review that highlighted the high visibility of future earnings, as well as the societal benefits that their products provide to the healthcare market.

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.

Underperformance due to impact of profit-taking in the market on prior outperformers

The fund underperformed the benchmark in September. On the positive side, the announcement of a long-term agreement with a battery manufacturer saw materials company, Umicore, rebound strongly. The bounce-back of financial shares in the month provided a tailwind to Asian-focused insurance business, Prudential, as it also pushed on with the demerger of its European life and asset management operations, M&G. Apparel manufacturer, VF Corp, gained following a positive analyst day and good reaction to the publication of long-term targets. On the negative side, US retailer, Tractor Supply, succumbed to further profit taking on a broker downgrade and concerns over slowing growth relative to its recent growth driven by the implementation of internal initiatives. US managed health organisation, Humana, was weaker on renewed uncertainty over US healthcare policy. After strong gains this year, payment stocks saw selling pressure throughout the month, pushing Mastercard weaker.

However, we gained from our sector and regional allocations. Sector allocation was a small positive; our zero weight in communication services and underweight in consumer staples offsetting the drag from our zero weight in energy. Geographic asset allocation was another small positive, driven mostly by our overweight in Japan, as well as a small positive contribution from our underweight to North America.

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Responsible Investment

We bought Becton Dickinson due to historical sales performance in lower growth periods

We initiated a position in US-listed global healthcare supplier, Becton Dickinson, following a review of the company. Its non-cyclical revenues and historical sales performance in lower growth periods appears attractive given the uncertain economic outlook, as well as the societal benefit that its products provide to the healthcare market. We also added to our position in German medical group, Fresenius SE, as the outlook for the company appears to be stabilising following its profit warning late last year. Our position in US rail operator, Union Pacific, was sold following review, as we now see the benefits of efficiency gains increasingly embedded into the share price, and future performance depends on the more cyclical volume outlook.

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. The portfolio is underweight communication services, energy and consumer staples. At the regional level, Emerging Markets and Japan are our biggest overweights, with the U.S. our largest underweight.

 

Interest rate cuts offset recession fears – we remain vigilant but constructive on equities

September saw the benchmark rise as sectors of the market that have underperformed this year, such as banks and energy, recorded the biggest gains. In the absence of clear direction, we have seen some profit-taking by investors on shares that have performed strongly in recent quarters – and where valuation support is less obvious – and reinvested into better ‘value’ names. After improving a little in recent months, overall economic data during September was weaker than expected and investors seem to be factoring in a slightly higher possibility of a recession. In terms of markets, this was offset by further monetary policy easing, with central banks announcing interest rates cuts and renewed buying of bonds. We remain vigilant but also constructive towards global equities.

Use our handy glossary to look up any technical jargon you are unfamiliar with.
Discrete performance vs. benchmark – 12 month rolling (EUR, net of fees)
Percentage growth % 2018-2019 2017-2018 2016-2017 2015-2016 2014-2015

Responsible Global Equity Fund

8.1

16.6

13.4

8.9

13.4

MSCI World

8.5

13.2

12.3

10.6

7.4

Discrete performance vs. benchmark – 12 month rolling (US$, net of fees)
Percentage growth % 2018-2019 2017-2018 2016-2017 2015-2016 2014-2015

Responsible Global Equity Fund

1.4

14.5

19.3

9.7

0.2

MSCI World

1.8

11.2

18.2

11.4

-5.1

Source: BMO Global Asset Management Limited as at 30-Sept-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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