Global Equities

August update – BMO Responsible Global Equity Fund

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

Modestly below falling benchmark in August

As markets pulled back in the face of rising trade and economic concerns, the fund slightly underperformed. A small negative contribution from stock selection was the cause. On the positive side, communications tower operator, Crown Castle, benefited from the defensive nature of its revenue stream. Data services and stock exchange operator, Intercontinental Exchange, gained from solid results and the rebound in equity market volatility over the month. Payments network, Mastercard, was stronger as investors reacted favourably to an acquisition and as some analysts raised their target prices following strong end of July results. On the negative side the insurance group Prudential was weak, despite solid results, as investors focused on rising operational headwinds. Concerns about slowing momentum in the industrial space saw medical products company, Mettler- Toledo International, succumb to profit taking. Meanwhile, interest rate sensitive bank, SVB Financial, was weaker on the yield curve inversion. The contribution from our geographic asset allocation was negligible as benchmark returns were remarkably well correlated. Sector allocation was a small drag, as the strong contributions from our zero weight in energy and our overweight in healthcare were more than offset by our underweight position in consumer staples and utilities, which were the two strongest performing sectors in the month.

At a glance
  • Modestly below falling benchmark in August, but still comfortably ahead year-to-date
  • Trade winds and recession fears weigh on investor confidence
  • Stocks seen as defensive prospered – which was neutral for our mix of quality companies with sustainable growth
  • Falling interest rate expectations was negative for some portfolio positions in financials, especially SVB Financial
  • Sale of position in Amdocs, added to existing holdings

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.

Use our handy glossary to look up any technical jargon you are unfamiliar with.
Taking profits, exiting Amdocs, to add to existing positions

We exited our position in IT services business, Amdocs, which had recovered from its January sell-off, since we had some concerns about the visibility into its end markets. We also took some profits in the strongly performing exchange operator, Intercontinental Exchange. The fund added to three existing holdings during August; infrastructure software company, Microsoft, Indian private bank, HDFC Bank, and Singapore listed transport services business, ComfortDelGro.

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.

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Trade winds and recession fears hold back equities despite fundamental attractions

August saw markets bounce around without much direction. There were further US tariffs on China and retaliation from Beijing, as well as rising geopolitical risks. Meanwhile the bond yield curve inversion highlighted fears from the ongoing weaker trend in global economic data. These factors are indeed likely to remain in the forefront of investors’ minds for the rest of the year. That said, the relative attraction of equities as an asset class, part of the reason behind our positive equity market view this year, still remains true. 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 are our key concerns. Overall, though, we remain constructive towards global equities and see scope for further gains in 2019.

 

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

6.2

18.9

10.8

4.3

20.1

MSCI World

5.9

15.6

8.8

7.3

12.7

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

0.6

16.3

18.2

3.7

2.2

MSCI World

0.3

13.1

16.2

6.7

-4.1

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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