Global Equities

BMO Responsible Global Equity Fund - May Update

Jamie Jenkins offers insights into the performance of BMO’s Responsible Global Equity Fund in May
June 2019

Jamie Jenkins

Managing Director and Co-Head of Global Equities

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Risk Disclaimer 

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. 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.

At a glance
  • Stock selection helps fund in challenging month for global equities
  • Earnings help Amdocs regain ground
  • Aptiv and A.O. Smith impacted by exposure to China
  • Microsoft enters portfolio after we exit Amazon.com
Trade tensions push equities lower – stock selection helps relative performance

In a negative month for global equities, we take some encouragement from our performance relative to the wider market. Stock selection was the key driver of resilience, with Kerry Group benefiting from a solid trading update and Amdocs regaining some ground after a better-than-expected earnings report. Mastercard also performed well after providing investors with a positive update at the end of April. On the negative side, names with Chinese exposure detracted as US/China tensions rumbled on. Both Aptiv (automotive supplier) and A.O. Smith (water heaters) felt the impact, with the latter also affected by a ‘short seller report’.

At the sector level, being underweight Consumer Staples and overweight Information Technology detracted. Stock selection within both these areas added value, however.

Risk Disclaimer 

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. 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.

Exit Amazon.com, new position in Microsoft

Our decision to exit Amazon.com was the standout transaction of the month. Several factors contributed to this move, not least growing concerns about Amazon’s move into advertising and associated worries about how they utilise personal consumer data and the onset of greater regulatory scrutiny. We are also mindful that whilst some progress has been made with our engagement efforts, the pace of improvement has slowed. Microsoft replaces Amazon.com – its addition reflecting our positive assessment of its earnings prospects and its ESG sustainability outlook.

We also sold Covetrus (animal health technology) and Kontoor Brands (jeans-wear), which span out of Henry Schein and VF Corp, respectively.

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 (take a look at our recent Japan trip note) and the UK are our biggest overweights, with the U.S. our largest underweight.
 

Trade rhetoric overshadows positive earnings

Whilst resurfacing rhetoric around trade-pressured equity markets generally, the Q1 earnings season continued in robust fashion, with many companies posting better-than-expected results. That said, a number of obstacles remain in place, with global trade issues, geopolitical tensions and central bank actions among the factors capable of triggering short-term volatility. Whilst valuations have now returned to levels that appear to be fair given the conditions, we still feel that there is a positive outlook over the medium term for equity markets. We remain vigilant but stay constructive overall.

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Global Equity

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

Responsible Global Equity Fund

5.53

11.80

14.16

-5.14

36.83

MSCI World

4.45

7.48

15.26

-5.42

31.56

Source: BMO Global Asset Management Limited as at 30-May-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.

The Fund is a sub fund of BMO Investments (Lux) I Fund, an investment company of variable capital (ICVC), registered in Luxembourg under No. B 25 570 and authorised by the Commission de Surveillance du Secteur Financier (CSSF). The Prospectus, Key Investor Information Document, Articles of Association, Annual and Interim Reports in German, as well as further information, can be obtained free of charge from our Swiss Representative: Carnegie Fund Services S.A., 11, rue du Général Dufour, CH-1204 Geneva, Switzerland, Web: www.carnegie-fund-services.ch. The paying agent is Banque Cantonale de Genève, 17, quai de l’Ile, CH-1204 Geneva. The current prices can be found at: www.fundinfo.com.

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