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Coronation Global Capital Plus Fund A - News
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Coronation Global Capital Plus comment - Mar 18
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Tuesday, 12 June 2018
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Fund Manager Comment
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Our previous quarterly report highlighted the almost ominously low levels of volatility as evidenced in the length of the bull market (without a technical pull back), the fact that calendar 2017 showed no negative monthly returns (a market first), and the very low levels of implied volatility when buying options. The first quarter of 2018 however shattered this level of complacency. While the year started with a very strong January, a combination of the re-assessment of interest rate levels over the next few years, aggravated by some inflationary pressures, as well as a renewed focus on the privacy debate pertaining to the new technology giants (on the back of some data manipulation claims against Facebook) led the equity market into a new era of volatility. Both February and March produced negative returns, and moving into April the market flirted with the 10% retracement level that would constitute a technical correction. The more recent market jitters have been in response to the increasing probability of a US/China trade war.
The quarterly return for the MSCI All Country World Index (ACWI) was negative 1.0%. Surprisingly, emerging markets outperformed developed markets, producing a return of 1.4%. The rolling 12- month return for the ACWI remains impressive at 14.9%, surpassed by an emerging markets return of 24.9%. The ACWI's five-year annualised return is also reasonable (9.2% p.a.), this time exceeding that of emerging markets (5.0% p.a.). Sectors that outperformed over the last quarter include information technology (ironically, given the recent pressure on Facebook and some of the other industry giants) and consumer discretionary. Materials and energy predictably performed poorly given the change in interest rate outlook, but it also adversely affected consumer staples, which sold off with the increase in longer term bonds (having erroneously been considered as bond proxies during the search for yield a few years ago). The US marginally outperformed the developed markets grouping, but continued currency weakness resulted in US dollar returns being very similar across different markets.
Global bond yields weakened slightly over the quarter, but the weaker US dollar also affected bond market returns worldwide. The Bloomberg Barclays Global Aggregate Bond Index's quarterly return of 1.4% (reported in US dollars) was at least 100 basis points lower in local currency terms. Listed property produced a negative return of 4.3%, affected by both interest rate jitters and a general risk-off trade. The US led the decline in this asset class, and apart from Japan, returns from most other regions were also negative. Again, the weaker US dollar aided the translation to the reporting currency (in USD).
Most commodities sold off against a backdrop of increased concern over the health of the global economy. Gold was essentially flat over the quarter.
The fund had a disappointing start to the year, returning negative 2.2% over the quarter. The 12-month lagging return is now positive 1.9%, while the since inception number is 4.1% p.a. Over five years and since inception, the fund is comfortably ahead of its benchmark.
Our decision to reduce equity exposure some time ago helped the fund's absolute performance, but our stock selection over the quarter and over the last 12 months have been weak. Our instrument selection in property was also poor, as was our overweight position in the asset class. Our credit positions in fixed income performed reasonably, and our gold holding added marginally.
Our biggest positive equity contributors included Amazon (continued rerating on the back of sound execution and speculation about entering other categories), Advance Auto Parts (turnaround strategy gaining early traction after oversold share price), Hammerson (an unexpected bid for the company being rebuffed by its Board), and Airbus (a recent portfolio introduction continuing to execute well). The largest equity detractor was the prior quarter's top performer - L Brands, where a poor trading statement resulted in the share price retreating to previous lows. Other losers included Altice (cable operator with poor results in its home market, France) and Intu Properties (fears that proposed Hammerson deal would fall through). Some of our consumer staple holdings were also marked down in line with the comments above.
We have significantly increased our portfolio exposure to tobacco stocks over the last 12 months. Currently about 3.5% of the fund is invested in stocks such as British American Tobacco, Philip Morris International, Japan Tobacco and Imperial Brands. While each company potentially offers a slightly different angle in terms of future potential returns, the overarching investment thesis is that the development of next generation products (while disruptive to the incumbent players in what has been a very stable industry) could prove to present the market with a new growth vector. Heat-notburn and vapour products have found favour with both existing smokers, as well as ex-smokers, and allow the industry to benefit from premium pricing for these products. The recently announced Food and Drug Administration's review of the industry in America has increased uncertainty in the shorter term, allowing us to pay what we would consider attractive prices for these stocks. In the longer run, we anticipate the larger players to consolidate the new technologies, leading to improving margins compared to the combustible market (assuming no adverse tax developments). Some of these companies are now trading at valuation multiples not far off those levels when they were facing potentially crippling financial legal claims, and we think these positions will serve the fund well over the medium to longer term.
While the fund's short-term performance has been a disappointment, we take encouragement from the fact that the portfolio is showing very attractive potential upside based on our assessment of fair value for our individual holdings in the equity and property buckets. We continue to manage overall portfolio risk. Over the last 12 months, these measures cost the fund 32 basis points. The cost of protection has now risen materially, and we would in all likelihood not replace the current protection measure when they expire.
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Coronation Global Capital Plus comment - Dec 13
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Thursday, 16 January 2014
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Fund Manager Comment
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Given that 2013 was a strongly positive year for most equityoriented portfolios, it is tempting to conclude that it was a rewarding year for all 'risk assets'. But this would be a wholly incorrect deduction. The past twelve months in investment markets have been more subtle than that. The fact that developed equity markets - using the US S&P Index as a proxy - rose by 32.4% in 2013 belies the fact that most asset classes actually fell!
In commodity markets the annual numbers present a bleak picture: gold (-27%); copper (-7%); aluminium (-14%); platinum (-11%). Even emerging market equities fared poorly, with the MSCI Emerging Markets Index down by 2% for the year. Brazil was the weakest performer of the large emerging economies, falling by a massive 27% (in US$). Currency markets followed a similar pattern as emerging currencies tumbled. The most notable casualties were the rand (-19%), the Indonesian rupiah (-21%) and the Argentinian peso (-25%). Bond markets also suffered. Again, using the US as a proxy, the bellwether US 10-year government bond produced a negative return of -5.1%. It is worth noting that the last time the US 10-year bond returned a negative total return was in 2009. Not surprisingly, as a consequence outflows from emerging market bonds continued unabated during the latter part of the year. To give this context, since 2009 emerging market bond funds have received inflows of US$173 billion, but since June 2013 outflows have been US$45 billion. The result is that some 80% of emerging market bond inflows since the third round of quantitative easing implemented by the US Federal Reserve (Fed) has now been unwound.
Within equity markets (as mentioned above) it was mostly developed equity markets that produced strong positive returns. The outlier, by a massive margin, was Japan which produced a return of 59%. The US market followed with a strong 32%, while European markets in aggregate rose by 22%. While the Fed has for some time been pursuing a massive US$85 billion bond-buying campaign to stimulate the US economy, in mid-2013 it signalled its desire to cut this programme (known as 'tapering'). And this is what led to the diverse market outcomes in 2013. The dilemma facing investors - and the Fed - related to the timing of when this will commence. It was this announcement which proved to be a turning point in investment sentiment, setting off the episode of rapid risk-reassessment that followed. Equity and credit markets were severely jarred. Clearly many investors did not appreciate just how reliant many asset classes had become on the liquidity support provided by the Fed.
The fund had a good three months, returning 2.5%. This brings the calendar year return to 8.8%, and the since inception annualised return (September 2009) to 6.6%. All of these numbers have materially outperformed the fund's targeted returns. Over this four-year period we have also managed the risk profile of the fund quite tightly, only breaching the 'no negative 12-month return' objective twice.
Over the past three months equities and credit exposures contributed positively, while property and gold exposures made small negative returns of 0.5% in aggregate. The equity portfolio provided 80% of the positive return, with three stocks - Blackstone, Google and Porsche - being the major contributors. Partial hedging of the equity exposure, being part of portfolio risk management, detracted 0.4% from returns. It is pleasing to note that over the past twelve months, and since inception, our equity carve-out has materially beaten the MSCI World Index.
Our credit exposures added to the fund's returns over the past quarter and year. What is notable is that over the past twelve months, the credit portfolio returned 10.5%, in sharp contrast to the fixed interest benchmark which fell by -4%. Part of this gratifying outcome was due to our decision to hedge out the interest rate risk of most of our positions, given our negative view on global government bonds. In addition, the selection of individual credit exposures was good, as well as well timed.
Looking at the property portfolio, since inception the fund's exposure to property has steadily increased to the current position of 18%. Property has been a material contributor to the fund's performance, accounting for an outsized contribution - relative to exposure levels - of close to 30% of the fund's returns since inception. Given that the property portfolio has been increasing its exposure to the German property market, a brief explanation follows.
In contrast to its European neighbours, the German residential market experienced price deflation between 1990 and 2009 and only started to recover in 2009; led by investment demand and rental growth. This growth can be attributed to a supply/demand imbalance created by underinvestment in new build accommodation, while the number of households increased on the back of net positive immigration and the formation of smaller households. We believe that the overall market continues to be attractively priced with capital growth upside, especially from a listed property perspective. Despite the strong demand, inflationadjusted rental levels and house prices have only increased by 2% - 3% per annum since 2009. The heavily regulated market ensures that rental growth remains within acceptable norms and protects it against excessive price increases. Listed property companies' portfolio valuations have not yet captured the underlying growth fully, as since 2009 the yields at which the portfolios have been valued (between 7% and 8%) remained fairly constant. Despite regulatory risks, structural long-term upside in underlying NAV growth should provide a price underpin, and the potential for positive share price performance.
Looking into 2014 and 2015, we continue to have conviction that the risk to forecasting global growth is underestimating the upside. US manufacturing output now looks to be growing at an annual rate of 4.5%. In terms of final demand, data suggests that the final quarter of 2013 will show retail sales growth of 3%, posting its strongest gain in almost two years. Activity data from China and emerging Asia suggest that rising US demand is boosting emerging manufacturing activity. Additionally, China is gaining success in producing growth via domestic consumption, rather than an overreliance on exports. Recent data have also brought welcome news of a rebound in Japanese export volumes, consistent with signs of faster growth in international trade and industrial production elsewhere in Asia. Europe is anticipated to exit from recession into 2014.
Investors should, however, prepare themselves for a bumpier ride in 2014 than was the case in 2013. This is an inevitable consequence of the end of quantitative easing. That said, we believe that a number of supportive secular themes will remain in place. The key one being that the rotation referred to above ('companies are safer than countries') will continue to underpin equity prices. More than ever, however, fund managers will find it tough to differentiate between those investments that will benefit from the prevailing macro themes, both positive and negative, that play out in 2014.
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Coronation Global Capital Plus comment - Mar 13
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Monday, 3 June 2013
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Fund Manager Comment
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Performance was generally very positive from developed market risk assets for the first quarter of 2013. The Nikkei (+20.1% in yen) spearheaded the total return performance charts on the back of Japan's rhetoric on inflation targeting and monetary policy. Other core developed equity markets also performed well during the quarter, with the S&P 500, FTSE 100 and DAX up 10.6%, 10.0% and 2.4% respectively (in local currency terms). However, given the large moves in currencies so far this year, the substantial nominal returns for the Nikkei and FTSE 100 translate to a much more subdued +9.7% and +2.6% respectively, in US dollars. Looking at the other end of the performance spectrum, peripheral European and emerging market equities as well as selected commodities have been the relative underperformers. Indeed, in equity markets, the BOVESPA in Brazil (-7.5%), FTSEMIB in Italy (-5.7%), the Greek ATHEX (-4.3%), Russian MICEX (-2.4%), IBEX in Spain (-2.0%), and the Shanghai Composite (-1.4%) all recorded negative returns for the quarter. The month of March proved to be negative for Spanish, Italian, Greek and European financials as a result of the latest bail-in strategies for Cyprus. This put into question the future template for resolving euro area banking crises, alongside the prospects for Europe's oversized financial institutions. Commodities were mostly down during the quarter, as illustrated by the 4% fall in the gold price. Globally listed property continued to perform well over the past quarter, almost beating equities with a return of 7.0% (in US dollars), which resulted in a one-year return of 19.9%. Japanese property REITs stood out with stellar performances, both in local currency and US dollar terms. Listed property in the US and the rest of Asia also did well, while Europe was the laggard in the short term given the financial turbulence experienced by the region. Turning to fixed interest assets, total return performance for credit, while still positive, was subdued when compared with equities. US and European high-yield indices were up 2.4% and 1.4% respectively, while core government bonds were largely flat on the year. Core interest rates benefited from the renewed European wobbles in the final two weeks of March, which helped offset some of the weakness at the start of the year. In aggregate, equity markets, as summarised by the MSCI World Index, rose by a decisive 7.9% over the quarter, which begs the question: "Why - in the face of significant headwinds such as the worsening political gridlock in the US, continued structural and growth stresses in Europe and defiance of international will by troublesome states like Iran and North Korea - have equity markets on balance moved firmly upwards?" The answer, in our opinion, lies in the fact that investors are becoming increasingly wary of entrusting their savings to ill-disciplined governments. Instead, they are realising that growing income flows from well-managed corporations are far more likely to protect them from the financial repression that lies ahead. The fund performed well against this background, producing a return of 3.6% over the quarter and 9.7% over the last twelve months. Given the poor performance of the euro currency over the last year, the benchmark return was negative, resulting in a substantial outperformance of the benchmark over most periods. Since inception the fund has also handsomely outperformed its benchmark. Our equity selection continued to add value relative to the MSCI benchmark index, and over the last twelve months the alpha generated amounted to over 4.5%. Notable winners included Blackstone, Sundrug and PMP, while Apple was the biggest detractor. Other detractors included Imperial Tobacco, Daphne and Lianhua Supermarkets. A pleasing aspect of the attribution analysis was the high hit rate of almost 70% over the last quarter. The long-dated call options on the Topix Index in Japan proved to be a great contributor given the sea change in investor sentiment following the political changes in government and the Bank of Japan. Again, this market's behaviour over the last 4-5 months was a reminder of the virtues of patience in investment markets, given that these instruments showed no value over the nearly two years since they were first introduced into the portfolio. Our property holdings underperformed the index over the period after a very strong run in 2012, while our holdings in gold shares also disappointed. The fund's exposure to platinum group metals (PGM) contributed positively and our fixed interest positions were marginally neutral over the shorter term, again after a strong run last year. Our currency deployment contributed positively, with the decision to avoid holding any yen exposure proving to be the most value enhancing, even considering that the yen does not feature in our benchmark. Over the last three months, we have continued to reduce equity exposure into the strength displayed by most global markets. Likewise, we reduced listed property exposure, while introducing some new holdings in Scandinavia into that segment. We reintroduced exposure to physical gold to the portfolio after the weakness referred to earlier in this report, and added to our PGM exposure in the form of ETFs, given the difficulties faced by South African platinum mines as the world's dominant metal producer. The fund's exposure to risk assets now amounts to around 42%, which is more or less in line with the anticipated long-term position. It is at the lower end of the range over the last few years, reflecting our more cautious outlook on risk assets given the strong run in financial assets. Given the fund's lower risk profile, we believe this is the prudent action to take, despite the fact that cash is currently yielding negative real returns. We will continue to seek uncorrelated assets to improve the fund's risk-adjusted return prospects, but are not apologetic for the high cash balances at a time when we consider global financial markets to carry increased risk.
Portfolio managers
Tony Gibson and Louis Stassen
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Coronation Global Capital Plus comment - Dec 12
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Tuesday, 26 March 2013
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Fund Manager Comment
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Global equity markets rallied in the fourth quarter of 2012, with the MSCI World Index up 2.6%. The better performing markets were China (+12.9%), Europe (+10.3%) and Japan (+16.7% in yen), while the Nasdaq Index in the US was the weakest developed market (-5.1%). Commodity prices had a poor quarter in aggegrate (-6.3%), with the most notable falls coming from platinum (-8.5%), nickel (-7.8%) and gold (-7.8%). In the bond markets, although the Citigroup World Government Bond Index returned -1.7%, there were strong rallies from previously depressed markets such as Greece and Italy. In the currency markets, the major shifts were in the Japanese yen, which fell by 10% against the US dollar, while the euro rallied by 2.5% against the US dollar. Two of the three major worries that dominated the investment landscape receded in the second half of the year. These were the eurozone debt crisis and the fear of a prolonged period of low growth for the Chinese economy. The third worry, the US fiscal cliff, became the dominant global macro news story by the end of the year - with an agreement of sorts being reached on the 1st of January. Although the euro crisis grumbled on, the peripheral debt spreads narrowed over the quarter. This reflected not only repeated assurances by the European Central Bank (ECB) that it stood behind the euro, but also progress on the creation of a eurozone banking union. Regarding Europe, Greece pushed through more austerity measures and structural reforms; Spain continued to prevaricate over applying for assistance from the Outright Monetary Transactions programme; while Italy faces an election in February following the announced resignation of prime minister Mario Monti. There remains a long road ahead before Europe's problems are fully resolved. In China, third quarter GDP growth came in at a stronger than expected rate of 9.1% (quarter on quarter annualised). This, together with an improvement in some economic leading indicators, contributed to a recovery in Chinese and emerging stock markets in general, with the MSCI Emerging Markets Index up 5.6% over the quarter in US dollar terms. In the US, newly re-elected President Obama led attempts by both Democrat and Republican politicians to avoid the so-called fiscal cliff, which would have resulted in an automatic US$600 billion worth of fiscal tightening taking place during the first quarter of 2013. A deal announced on 1 January 2013 saw some tax hikes, but no agreement on spending cuts. Uncertainty generated by the fiscal cliff contributed to weak consumer confidence in the fourth quarter, with the Conference Board's Consumer Confidence Index hitting a five-month low of 65.1 in December. However, economic data from the US continued to be positive. This reflects the improvements seen in labour and housing markets, both of which are key to the economic recovery and translate into increased consumer spending. Revised thirdquarter US GDP data saw the economy grow by 3.1% on an annualised basis. Japanese equities performed strongly this past quarter, with the TOPIX Index up 16.7%. Much of this was driven by expectations that Shinzo Abe, the newly-elected Prime Minister, would embark on a policy aimed at reflating the economy. This may include compromising the independence of the Bank of Japan through forcing it to accept a higher inflation target of 2% and encouraging it to work more closely with the government on policy objectives. Looking at which investment styles proved most successful during the quarter, the MSCI Small Cap Index delivered strong outperformance relative to large cap stocks, while the MSCI Value Index outperformed the MSCI Growth Index by some margin. Bond markets continued to reward risk-takers, with spreads on peripheral eurozone bonds falling further as the political environment around the euro crisis improved. Meanwhile the relatively generous yields available in the high yield space continued to attract fixed interest investors faced with negative real yields on core government bond markets. Gold fell 6% over the quarter, failing to rally despite assurances by the US Federal Reserve that interest rates will be held at current levels until unemployment fell below 6.5%. A further factor working against gold was slower consumer demand growth from India and China. The fund had a positive quarter, returning 2.5% after fees. For the year to 31 December 2012 the return was a very pleasing 11.8%, while the annualised return since inception (September 2009) was 6.0%. All of these numbers exceed the cash benchmark by a large margin. Looking at the fund's performance attribution analysis over the past quarter, the greatest positive performance was generated equally between the property and equity segments. Fixed interest also contributed positively, whereas the gold exposure detracted from performance. While the equity component produced positive alpha over the quarter, it was the property and fixed interest investments which outperformed their respective benchmark indices by very impressive margins. The property holdings returned over 11% for the quarter, the fixed interest component over 7%, and the equity investments over 3%. There were no material changes to the portfolio structure during the past quarter. The equity exposure was reduced marginally from 31% to 29%, largely due to an increase in portfolio hedging. The makeup of the equity portfolio was little changed, as can be seen from the top ten equity holdings. The two external managers (Cantillon and Contrarius) remain the same. The gold exposure was slightly reduced, while exposures to platinum (1%) and palladium (0.5%) were introduced into the fund via an ETF. Although the property exposure increased slightly from 12% to 13.5%, this reflects a very strong performance from the underlying property holdings, rather than an active decision to increase exposure. Given the re-rating in a number of the fund's holdings, action was taken to 'refresh' the portfolio. Three positions were sold, while eight new positions were added. Holdings in Australia and Japan performed particularly strongly, and not surprisingly were the areas where gains were realised, while a number of new European holdings were added. Similarly in the fixed interest portfolio, where credit performed strongly over the quarter, some profits were taken. However; the overall exposure increased by 3% due to the addition of an investment in Sasol debt which we deemed to be attractively priced. We are positive regarding the outlook for equity markets in 2013. This is in the context of our conviction that the US economy is steadily recovering, coupled to our belief that the financial authorities in the developed economies will retain pro-growth policies well into the recovery cycle. That said, we remain mindful of your portfolio's mandate which is to produce capital appreciation, but with volatility kept well below the level generally incurred by investing in risk assets.
Portfolio managers
Tony Gibson and Louis Stassen
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Coronation Global Capital Plus comment - Sep 12
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Tuesday, 11 December 2012
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Fund Manager Comment
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The highlight of the global investment landscape over the last quarter was the coordinated response to the deepening global fiscal crisis and resultant lower economic growth outlook. European Central Bank (ECB) president, Mario Draghi, was first to make the now infamous pledge to 'do whatever it takes' to protect the eurozone from collapse. This was followed by the bank's announcement to implement an open-ended strategy of buying short-dated Italian and Spanish bonds provided these countries adhere to certain conditions. This minimised the threat in the minds of investors (perceived and real) of a break-up of the euro. Shortly thereafter, Federal Reserve chairman, Ben Bernanke, announced a third quantitative easing programme for the US over an indefinite period in response to the country's sluggish labour market recovery. In a slightly less dramatic fashion, the central bank of Japan also stepped up its efforts to stimulate the economy through liquidity injections. Global economic data point releases since the start of the quarter continued to point to a sharp slowdown in economic activity - even in countries like China, Brazil and Australia - which put severe pressure on commodity prices during the quarter. The one exception has been the oil price, where ongoing political uncertainty in the Middle East contributed to heightened anxiety among investors and end users, resulting in a rising price trend. The impact of the announced significant liquidity injections however resulted in a sharp rerating of risk assets since the start of September as investors' focus briefly shifted away from the weakening economic landscape. Most commodities rebounded strongly following these announcements, with the price of iron ore for example up 34% from the lows it reached earlier in the quarter. The 'risk on' trade resulted in a strong recovery in global equity markets. The MSCI World Index returned 6.8% for the quarter and an incredible 22.3% for the last 12 months. As expected, emerging markets delivered a slightly better return of 7.9% for the quarter, although the annual return of 17.3% lags that of the developed world. Global bond markets continued to remain quite firm, clearly benefiting from ongoing central bank intervention. In US dollars, the Citigroup World Government Bond Index returned 3.0% for the quarter (supported by a stronger euro and tightening spreads from the European peripheral countries) and 3.3% for the last 12 months (with a weaker euro over this period detracting significantly). Surprisingly the rand weakened slightly during the quarter and experienced significant weakness subsequent to quarterend. Contributing factors were the very weak trade and current account numbers published during the period, and the wave of labour unrest sweeping through the economy after the tragic events that unfolded at Lonmin's Marikana mine. Foreigners, who have been happily funding the massive deficit, seem to have taken fright and aggressively reduced their allocation to South Africa. The fund had a particularly good quarter. In US dollar terms it returned 4.7% for the three months after fees, and 13.2% for the last 12 months. Over the last three years the annualised return is a more sobering 4.0%, and since inception in October 2008 the returns have been 8.95% p.a. All of these numbers exceed the cash benchmark by a large margin, with the three-year benchmark number negative 1.3% on the back of a significantly weaker euro over the period. In rand terms, the returns for the quarter, year and the last three years were 6.8%, 16.2%, and 7.5% p.a. respectively. As always, the fund is being managed purely in US dollar terms, but reporting is done in rands. Most pleasing was the attribution analysis of our quarterly performance. We continued to add alpha within the equity bucket, both within our active stock picking and our fund selection. Individual positions that contributed strongly include long-time favourites Google, Great Wall Motors, Follie Follie and Symantec. Detractors were PMP, Guess and Lianhua Supermarkets. We continued to reduce equity exposure into the rally by trimming existing positions and through hedging (using futures). We currently have an equity exposure of around 30% (the lowest level in the last 12 months), which reflects our cautious stance in light of the strong equity market performance to date. In addition, our property holdings performed very well over the quarter, yielding just over 10%, and outperforming the sector by a wide margin. We reduced some of our Asian positions and added to our European exposure. We however also reduced the fund's exposure to this asset class after its very strong rerating over the last 9-12 months. Our exposure to gold shares contributed positively, given the uncertain macro backdrop. The credit positions benefited from the increased risk appetite, and we used the opportunity to reduce exposure. We are entering the fourth quarter with most of our risk asset exposures slightly trimmed, and will look to continue with these actions should markets remain strong. We remain concerned about some of the challenges facing the major economies of the world, but are still reasonably positive about the outlook for many of our stock picks, both in the equity and listed property space. In marrying these two contrasting views, we believe it is prudent to trim holdings into periods of strength to adhere to the overriding risk parameters of the fund.
Portfolio managers
Tony Gibson and Louis Stassen
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Coronation Global Capital Plus comment - Jun 12
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Thursday, 26 July 2012
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Fund Manager Comment
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Confidence in risk assets took a big knock during the past quarter, reflecting the growing perception from investors that the financial world is in a pretty dire place right now. Whereas the first quarter of 2012 began with much optimism, largely based on the expectation of an accelerating global economic upswing, this confidence steadily unravelled during the second quarter. The result was that global equity markets, after rising by 11.7% in the first quarter, fell by 4.9% in the second. That said, the decline feels bigger than the actual fall; but this is more a reflection of ongoing volatility rather than the absolute level of decline. The MSCI World Index actually fell by 11% during April and May, but rallied in June. The troubled situation in Europe is by far the most vexing question undermining investor confidence. In sharp contrast to the US, solving the ongoing issues in Europe appear to be beyond the abilities of the continent's leaders. The conclusion to this problem - and this is what is unsettling investor confidence - is gradually becoming clear. That is a scenario in which Germany will only do the bare minimum to avoid a collapse of the Euro Project as demanded by financial markets, while at the same time being absolutely inflexible in its demand that the weak financial management of the Southern Europe countries is steadily rectified. While sound in the medium term, the German approach is clearly not helpful to the outlook for economic growth out of Europe for the next couple of years. The second negative issue relates to the concerns that the economic growth rate in China has permanently peaked, and is in the process of slowing sharply. This is illustrated by statistics showing that China's Purchasing Manager's Index fell further in June, recording its weakest reading so far this year as the country's manufacturing sector continues to decline. China's gross domestic product grew by 8.1% per cent in the first quarter of 2012 - the slowest pace in nearly three years. Our expectation is for further interest rate cuts, and for a rebound in the economy to begin in the third quarter, after six successive quarters of decelerating growth in the world's second-largest economy. The third cause of negativity during the past quarter has been a weakening of conviction as to the durability of economic growth in the US. Following on from a more robust period of growth towards the end of 2011, with GDP growing by 3% in the final quarter, economic indicators in recent months have pointed to a marked slowdown in the rate of growth. After a number of revisions, GDP growth in the first quarter of 2012 is reported to have been lower at 1.9%. That said, statistics from early-indicator sectors such as motor car and home sales clearly suggest that a bottoming-out process has occurred. In May, new home sales increased to more than 369 000, the most homes sold in a single month since April 2010. This bodes well for future construction projects. The fund had a disappointing quarter in absolute terms, falling by 1.9%. This compares with the fund's absolute benchmark which fell by 2.4%. Please note that the benchmark comprises of cash returns, split 50:50 between US dollars and euros. The exposure to the euro explains the decline in the benchmark, given that the fund's performance is reported in US dollars. A more favourable comparison is with the MSCI World Index which fell by 4.9%, while emerging markets fared the worst, falling by 8.8%. Similarly, the fund's 12-month performance is disappointing in absolute terms, falling by 3.7%. This compares more favourably with the absolute benchmark which fell by 5.6% over the past 12 months. The MSCI World Index fell by 4.4%, and the Emerging Markets Index fell by 15.7% over the 12 months. We remain very cognisant of the fund's stated objective of never producing a negative performance number over any rolling 12-month period. Inevitably, the fund's exposure to equities accounted for the bulk of the fall during the quarter. Although we had initiated some portfolio protection via put options, this was insufficient to protect the whole portfolio. Stocks that added to performance include Wal-Mart, Vodafone and Anheuser-Busch Inbev, whereas Symantec, Blackstone, and Sohu.com detracted. The property stock selection was a positive contributor to overall performance, both in absolute and relative terms, adding 61 basis points. Furthermore, our position in gas for the first time added to performance, albeit in a marginal way. It should be noted that the S&P Index of raw commodities has fallen by more than 20% from this year's closing high on 24th February. 13% of this fall was in the second quarter. Other negative contributors for the period include our fixed interest exposure, both in absolute and relative terms, which detracted 25 basis points, while our exposure to gold detracted 18 basis points. There were two changes to the fund's structure during the quarter. Overall equity exposure increased by 3.4%; resulting from a reduction in the level of derivative protection. This decision was taken following the sharp equity market falls in May and early June. This change added to performance during late June. The second change was the decision to switch the exposure to gold bullion into gold equities, via a North American ETF. The motivation underlying this was to take advantage of the very material underperformance of gold shares in relation to the physical price of gold bullion over the past year. The fund's currency structure is currently 80% exposed to the US dollar, and 10% to each of the Norwegian krone and the Swedish krona. Furthermore, while not an attractive medium-term investment, it is hard to knock the attractions of cash during periods of uncertainty and volatility. That said, our conviction that international equities and property, rather than bonds, should form the core component of a balanced portfolio is greater than ever. Investors have, over recent years, been fleeing to 'safety' by investing in US 10-year Treasury bonds, causing the yields to fall to less than 1.5%. This is a level not seen since 1946. Similarly, German 10-year yields fell to an all-time low of near 1. Meanwhile, global equity markets continued to fall sharply. Investors appear to be far more concerned with the return of, rather than the return on, their money. Since 2008, some $1 trillion has been moved from equity funds to bond funds. Similar shifts from equities to bonds have characterised US pension fund allocations. Our view is that, for the next few years, equity returns to investors will be somewhat lower than the real 7% average enjoyed during the 20th century. The key point is that the case for equities is not that they offer high returns in absolute terms, but that the appeal of other investment categories have deteriorated as much or more, relative to historic norms.
Portfolio managers
Tony Gibson and Louis Stassen
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Coronation Global Capital Plus comment - Dec 11
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Friday, 24 February 2012
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Fund Manager Comment
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To claim that 2011 was an eventful year would probably be an understatement... In March, global financial markets were initially jolted by the earthquake and tsunami in Japan, but recovered reasonably quickly when it became apparent that the doomsday scenario with regards to a nuclear disaster would not materialise. The dysfunctional political process in the US regarding the lifting of the debt ceiling then tested investors' resolve, leading to the first downgrade of US debt in history. Counter intuitively this downgrade was followed by a sharp rally in US bonds and an equally sharp decline in global equities. At the same time, the European sovereign debt crisis reignited fears of a global recession. The political landscape in North America and the Middle East was permanently changed by the events following the events of the Arab Spring.
The last quarter of the calendar year proved to be a rewarding one for investors in risky assets across the globe, but specifically in the US. The MSCI World Index rose by 7.7% over the quarter, bring the total return for the year to -5.0%. Interestingly, emerging equity markets continued to underperform their developed counterparts, with the annual number -18.2% (4.4% for the quarter). Over the year the range of returns, even amongst developed equity markets, was huge with the US showing slight positive numbers (around 2%) and European bourses performing the worst with numbers around -17% for the major markets. A few percentage points of this underperformance was due to the weakness of the euro, although remarkably the currency only weakened by about 2.5% against the US dollar over the year. While global fixed interest markets were uninspiring over the quarter, the sector still returned more than 6% for the year, despite the severe sell-off in some of the European sovereign instruments during the period. Listed property was flat for the year, with a sharp rebound in the US listed market in the quarter.
The fund had a good last quarter, returning 3.3%. This was significantly ahead of the benchmark, which was negatively affected by the weakness in the euro over the period. The 12- month return of -2.3% is however a disappointment, even with the benchmark also in slightly negative territory. Since inception the fund has continued to exceed its outperformance target.
While the fund's high exposure to equities hurt performance in the earlier part of the year, it contributed strongly over the past quarter. In addition, stock picking has been good, with significant alpha added over the period. Over the year, alpha generation was also satisfactory. Notable stock contributors included Great Wall Motors, Safeway, Google, Interpublic and Pernod Ricard. Towards the end of the year we started to reduce our equity exposure by buying protection. We believe this to be prudent given the fund's lower risk appetite. We do continue, however, to believe that equities, in the medium-term, will deliver the best returns from all the available asset classes.
The fund's fixed interest exposure also contributed positively over the quarter; erasing losses from earlier in the year. Most of our holdings rebounded as risk appetite increased, and we continue to expect good returns from these instruments.
Listed property disappointed over the quarter and the full year, with negative returns generated over the calendar year. This has been as a result of both deeply discounted capital raisings by our Japanese stocks and a severe sell-off in Singaporean property stocks over concerns about global growth. We have added to some of these holdings, and continue to expect good returns into the future.
Our gold position was almost flat over the quarter, but still up for the year. We added slightly to the position into the weakness experienced in December. Natural gas continued to be a major disappointment, both over the shorter-term and since initiating the position. There is no doubt that the fundamentals for the commodity have weakened since the initial trade, but we still believe that the current price is discounting all of the bad news, without any possibility of an improvement in the supply/demand fundamentals being priced in.
The past year has been a trying one in financial markets, especially for risk averse investors. The fund did not escape the volatility and we are determined to make 2012 a better year for our investors. Early indications are that we should, however, continue to expect significant swings in investor sentiment given the fragility of the global economic situation.
Portfolio managers
Tony Gibson and Louis Stassen
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Coronation Global Capital Plus comment - Sep 11
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Wednesday, 21 December 2011
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Fund Manager Comment
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The turmoil in global markets accelerated in August and September driven by the Euro crisis, fears of a global recession and a 'hard landing' in China. As is typically the case in times of a crisis, emerging markets declined significantly more than developed markets, even though one could very rationally argue that the fundamentals and valuations of emerging markets are far better than those of the developed world. It was not only the equity markets that declined, but also the currencies and during September the Turkish Lira, Russian Ruble, Mexican Peso, Hungarian Forint, Brazilian Real, South African Rand and Polish Zloty all lost between 12 to 16% of their value against the US dollar. Year to date the MSCI Emerging Markets index is now -21.66% and the fund is somewhat better at -17.90%. Since inception just over 3 years ago, the fund has outperformed the index by 4.89% per annum. This sell-off has ultimately been driven by panic and fear and stock movements are significant, with double-digit daily declines in single stocks being frequent. These are not normal conditions and although we very much consider ourselves to be long-term investors, we have found ourselves being more active in the portfolio than would ordinarily be the case. We build the portfolio on a risk-adjusted expected return basis, with position sizes being determined by the upside to our fair values (expected return) as well as consideration of the risk to the earnings streams embedded in these values. In our view, it is times like these (with forced selling resulting in irrational price moves) that one typically gets the opportunity to upgrade the quality of the portfolio, and this is what we have been doing: buying high quality businesses that we sold out of two years ago due to valuation which have now become very attractive again. Lianhua Supermarkets (China), X5 Retail (Russia) and Anhanguera (Brazil) would all fall into this camp. These shares have as much upside to fair value as the shares we sold, but the businesses are higher quality in our view. Our conviction in the 5-year earnings streams of these businesses is also higher than that of the shares we sold, meaning that the risk-adjusted expected returns are more attractive. Lianhua Supermarkets started in 1991 in Shanghai and is a nationwide grocery retailer operating primarily in the eastern areas of China. The group is present in three retail formats - hypermarket, supermarket and convenience store, and operates under the banners Century Mart, Lianhua and Quik respectively. The company also has a joint venture with Carrefour and besides the hypermarkets in this structure, the company owns all of its hypermarkets and uses a combination of self-owned and franchisees for the supermarkets and convenience stores. The performance of the hypermarkets has improved over time with operating margins having expanded from 0.1% in 2007 to 2.7% for the first half of 2011, and supermarket margins having expanded from 3.5% to 4.5% over the past few years. The group continues to roll out new stores at a rate of around 5% per annum and as the existing stores mature the margin will expand in our view. At time of purchase, the shares were trading on around 12x next year's earnings, which we believe is very attractive given the growth profile in China, where modern retail is still a relatively small portion of total retail spend. The company also has a strong balance sheet and has a large net cash position, part of which is from vouchers and the other is free cash. The stock of Russion grocery retailer X5 Retail fell 45% from its peak, which created an attractive opportunity to re-introduce it to the fund. X5 operate three formats: soft discounters, supermarkets and hypermarkets. The food retail market in Russia is very fragmented, with the top ten retailers having less than 20% market share and X5 are one of the consolidators. During 2010 the company acquired another Russian retailer, Kopeyka. This increased the group's number of stores by 35% and selling space by 19%. The integration process has resulted in below normal margins as IT platforms are merged, distribution channels are integrated, staff are trained and stores rebranded. Each store's rebranding takes around two weeks, temporarily reducing selling space. Trading densities are also well below normal and the total sales area will grow between 10-15% per annum for the next five years. At our average purchase price the stock was trading on around 15x next year's earnings which we believe is very attractive for what is a high quality asset. Anhangera is a private university aimed primarily at working adults and has a strong brand in Brazil's fragmented education market. The company operates from a number of campuses and on average these campuses are operating at less than 70% of capacity with 3,500 students compared to total potential capacity of 5,000 students. Mature campuses operate with gross margins of 50% while newly acquired campuses operate on gross margins as low as 20% because small operators lack scale. This margin expansion is achieved by increased enrolment and curriculum rationalisation. Campuses use the same content per subject and share central administration which dilutes fixed costs as additional campuses are added to the network. We originally started buying Anhanguera in early 2009 and almost completely sold out after the share price trebled in the year that followed. The share price has halved over the past few months due to a number of concerns, the primary one arguably being concerns over the Brazilian economy. We believe that the long-term prospects for the Brazilian education industry are very attractive and Anhanguera is well placed within this industry. We have been buyers of the stock over the past few months to the point where Anhanguera is now a top 5 holding in the fund. We continue to search for opportunities and members of the team are scheduled to go to Asia for a two week trip in November to meet with a range of companies, both current portfolio holdings as well as potential new ideas. Other members of the team will betravelling to both Brazil and China in January.
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Coronation Global Capital Plus comment - Jun 11
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Tuesday, 6 September 2011
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Fund Manager Comment
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The past quarter was dominated by disappointing US economic data and the ongoing debt crisis in Europe, with Greece (again) at the centre. Despite promising data points earlier in the year, recent employment, housing and auto sales data are signaling a slowdown in the recovery in both the US and wider Europe, while even China's robust growth has eased slightly. These issues all contributed to a choppy market, which recovered strongly in the final week of the quarter on the apparent resolution of this round of Greek funding issues. In terms of regional equity performance Europe was the best performing region rising 2.9% (in US dollar terms), while North America performed the worst falling 0.3% (in US dollar terms). Japan was marginally positive at 0.2%, while Asia declined by 0.2%. Currencies also remained volatile during the past three months.
The fund returned 2.1% (in US dollars) over the past quarter net of all fees. This is a satisfying outcome given the continued financial market volatility experienced over the quarter and the end result of a mere 0.7% return from world equity markets. Global bonds returned a more stable 3.3% return, whereas global listed property returned 4.4%. The 12- month net return of 16.2% is equally pleasing and is in keeping with the fund's longer-term objective of positive returns at lower-than-equity-market volatility.
It is pleasing to note that the fund's equity holdings had a better quarter - outperforming the MSCI World Index. The past two quarters' returns have reversed the negative trend of the previous period. Similarly, the listed property holdings within the fund had a good quarter in both absolute and relative returns, and over the last 12 months our exposure to listed property has contributed materially to performance. Our position in physical gold continues to add to performance, albeit less materially than in previous quarters. The fund's fixed interest investments also contributed positively to performance over the past quarter as well as 12- month period. The only disappointing area of investment continues to be the fund's investment in natural gas. We remain invested in this position and continue to believe that demand for liquefied natural gas will continue to support a narrowing of the discount to the price of oil.
As mentioned in the previous quarter, we have become increasingly optimistic that a positive re-rating of Japanese equities will occur. This has been our view prior to the recent catastrophe in Japan and has not changed since. Although we are positive on the outlook for Japanese equities as a result of their discount to intrinsic value, we concede that we do not have high conviction as to the timing of a potential narrowing of this gap. With this in mind, we bought 7.5% gross exposure to 10% out-the money, 5-year options on the Topix Index. We took advantage of depressed index levels and volatility to buy this exposure at a cost of approximately 19 basis points per annum. This gives us the opportunity to get significant exposure to the region, however with limited downside.
Largely due to this investment, the fund's exposure to equities increased by 4% during the past quarter. There were no other significant transactions. Within the direct equity positions, the fund's bias towards defensive businesses remained the same. New positions introduced included BMW, Deutsche Boerse, Deutsche Telekom and Google. Overall, corporate profits in the US and Europe have ballooned in the last two years, company balance sheets are strong, valuations are not stretched on any measures and investor expectations remain low. This creates opportunities, even if volatility continues to persist as the risks of an economic slowdown play out.
There were no changes to the currency exposures of the fund. The bias remains towards the US dollar and away from commodity and emerging market orientated currencies.
Portfolio managers
Tony Gibson and Louis Stassen
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Coronation Global Capital Plus comment - Mar 11
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Tuesday, 24 May 2011
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Fund Manager Comment
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The first quarter of 2011 has brought a new set of challenges to financial markets. The standout event affecting markets was the tragic unfolding catastrophe in Japan during the month of March. It is important to separate the human impact and the economic impact of this event. From an economic perspective, Japan's short-term growth assumptions were reduced, but the result of the reconstruction programme may add to longer-term growth prospects in both Japan and the rest of the region. As an indication of the volatility financial markets faced, the Japanese market fell by just over 20% over the three days subsequent to the earthquake, and rebounded by almost 19% over the following 2 weeks! Such volatility in one of the largest financial markets in the world is almost unprecedented, reflecting the fear and uncertainty facing such a large economic region. A reminder of the power of compounding reflects that a market that was down 20%, recovered by almost the same amount, but would still leave investors down 5% over the period - communicating the importance of preserving capital over periods of market volatility. Your fund returned 2.06% (in US dollar terms) over the quarter net of all fees, a very satisfying outcome given the challenges. The MSCI World Index produced a positive 4.9%, the Global Bond Index 0.7% and global listed property performed well, producing 5.5% over the quarter. The net fund return of 6.5% over the last 12 months is more disappointing, driven by a poor second quarter of 2010, as discussed in previous reports. The fund's equity holdings did not perform well in relative terms, but have arrested the disappointing trend of the previous two quarters. Our listed property holdings were negatively impacted by the Japanese holdings, although only one position (Japan Retail Fund) is still substantially down from its pre-quake levels. Over the last twelve months the fund has benefited hugely from its listed property positions, despite the recent setback. The position in physical gold continues to add to performance, although we did trim exposure slightly as we are starting to see it as a consensus trade. Our natural gas position continued to detract over the quarter, although did (recently) benefit from the anticipated increase in demand for LNG post the earthquake. We remain confident that the fund will profit from this position over time. We actively added to our equity exposure, mostly by increasing exposure to Japan. While we have held a positive view of valuation levels of Japanese equities, we have (prior to recent events) not held significant exposure to that market. Given the significant change in pricing, we have also shifted some of our US exposure into Japan - on a see-through basis exposure to Japan is now approximately 15%. We also added to our property exposures, particularly in Singapore and Australia. And towards the end of the quarter swapped some direct equity exposure for call options on the US market, thereby limiting our downside without losing too much potential upside participation. The implied volatility cost of these options is very low relative to history. We maintain our view on fixed interest, and will only materially change the fund holdings should global bonds sell-off significantly. Within the direct equity positions, the fund remains biased towards defensive businesses like Heineken, Tesco, Vodafone and Imperial Tobacco, but has some exposure to the more cyclical shares like Cisco, CVS Caremark and Warner Music. In terms of equity funds in the portfolio, two funds were introduced as longer-term anchor tenants, which should reduce volatility over the longer term. The fund remains biased towards the US dollar. Given the weakness recently experienced, this position hurt over the quarter. We retain a reasonable position in the British pound after a period of severe underperformance in the last two years.
Portfolio managers
Tony Gibson and Louis Stassen
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Coronation Global Capital Plus comment - Dec 10
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Thursday, 24 February 2011
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Fund Manager Comment
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Globally equity markets continued their strong recovery, with the MSCI World Index returning 9% for the quarter, taking its return for calendar 2010 to over 12% and the recovery from the lows at the end of June to 25%. Fixed interest markets around the world retreated further, generating another quarter of negative returns, and shrinking the annual return number to just over 3%. Listed property continued to benefit from the renewed risk appetite, and delivered another strong performance. In other sectors commodities continue to do well, albeit with increased volatility. Gold for instance, returned over 7% for the 3-month period. The currency market proved uneventful, with the dollar relatively stable over the period, but also with a fair degree of inter-period volatility.
Your fund returned 1.8% for the quarter, continuing the strong recovery experienced since July 2010. The calendar year return of 3.3% in dollar terms comfortably exceeded the targeted return, and the since inception annualised return of 8.3% p.a. outstrips our initial expectations by a large margin. It must be stressed that these returns were achieved within acceptable risk parameters, and we remain conscious of the fund's lower risk profile.
Positive returns came from both our continued exposure to defensive cheap equities and from our continued success in picking strongly performing listed property counters. Our physical gold position was another positive, whilst a very defensive position in fixed interest assets ensured that the fund benefited from its holdings, despite the negative benchmark returns. The position in corn, which was sold during the period, also contributed. The exposure to natural gas had a marginally positive effect, but the prices are still significantly below our entry levels.
Over the period we introduced some hedging into the fund to protect it from adverse developments in global equity markets. Whilst this insurance comes at a price, we are convinced that it is in line with the fund's risk parameters. We will continue to consider further hedging at acceptable prices. We reduced the fund's exposure to emerging equity markets to further reduce the risk profile. We have also taken some profit in the property holdings.
Whilst global equity markets continue to discount a positive outcome for corporate profits, we remain conscious of the risks embedded in this outlook and will continue to manage the fund conservatively.
Portfolio managers
Tony Gibson and Louis Stassen Client
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Coronation Global Capital Plus comment - Sep 10
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Monday, 8 November 2010
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Fund Manager Comment
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The now much talked about "risk on - risk off" investor behaviour continued into the third quarter of 2010. July was a positive month for risky assets, August was negative, and then September brought a strong wave of upward pricing of risk, resulting in a quarterly return for the MSCI World Index of 13.9%. The year-to-date return number now lies at 3.0%, albeit with a lot of volatility around this number during the course of the year. The renewed optimism coincided with continued weakness in the dollar across all the major currencies of the world, but specifically against the euro. Gold continued to rise amidst more talk of the second round of quantitative easing, whilst global bond markets (and specifically higher yielding markets) continued to attract vast investor flows as the search for yield intensified. Listed property also benefited from this search for risk, with the REIT sector slightly outperforming global equities over the last three months, highlighting their attractive valuation levels going into this calendar year. Your fund performed very well against this background. The quarterly return of 9.5% in dollar terms not only reversed the previous quarter's disappointing trend, but also put the fund back in positive territory since the beginning of the calendar year with a number of 1.5%. The 12-month rolling return of 5.25% comfortably outperformed the benchmark of global cash by around 5%, a credible performance given the turbulent times in financial markets. Since inception 13 months ago, the fund has generated an annualised return of 8.5%. The fund benefited from quite a few positive levers over the period. Its equity selections performed very well, outperforming the market by more than 3% over the quarter. Its property selection outperformed the market by almost 10%, whilst the positions in wheat and corn finally turned around very decisively following the Russian drought and the country's restrictions on the export of wheat. These positions, whilst small, added about 1% to fund performance. The physical gold position again contributed positively, as did the fixed interest positions. The only black mark on the score card was the positions in natural gas. We remain convinced of the merits of this view and will continue to hold these positions. Within our equity universe the cash offer for McAfee added significantly to performance, as did holdings in other slightly more cyclical counters like Wirecard, Qualcomm and our Greek holdings. More significant detractors included Warner Music, HP, and Heidelberg Cement. Most of the property holdings added value, especially the Australian and Singaporean stocks. We exited the wheat position into the euphoria around potential global shortages, and reduced the corn position. Equity exposure has been brought down slightly in September, given the very strong markets, but we continue to find value in equities over the longer term. We still see lots of value in listed property, and remain nervous of developed market bond yields. We intend retaining the gold position as long as the uncertainty around the effects of the economic meltdown persists.
Portfolio managers
Tony Gibson and Louis Stassen
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Coronation Global Capital Plus comment - Jun 10
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Monday, 6 September 2010
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Fund Manager Comment
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Global financial markets experienced a wonderfully uplifting period in the 12 months to end March 2010. The honeymoon however ended in the three months to end June, with a major repricing of risk. The deepening debt crisis in Europe acted as prime catalyst early in the repricing cycle, whilst weak economic data from around the world added to investor fears towards the end of the quarter. For the quarter, the MSCI World Index delivered a return of -12.5%, resulting in a 12-month return of +10.8%. The Global REIT Property Index returned -6.9% over three months, whilst the Salomon G5 Bond Index returned 0.3% (despite a stronger dollar). This reflects the flight to perceived safety as the debt crisis accelerated and the fears of a double-dip recession increased.
Against this background your fund had a poor quarter. The three-month return of -6.4% was disappointing, and the yearto- date number of -7.3% is also well below our expectations. Given our focus on capital preservation, we are working hard to get the shorter term numbers back into positive territory. Since inception 10 months ago, the fund has generated a return of -0.2%, which is ahead of the benchmark's -5.9% p.a.
Our stock selection did not contribute positively to overall performance. The main detractors were our stock positions with exposure to the Greek economy, as well as some American positions where the regulatory framework moved against them. On the positive side, some of our pharmaceutical positions started coming through, as well as some of the more defensive fast moving consumer goods (FMCG) positions such as tobacco and household manufacturers. We exited positions in Telefonica and Sanofi, in both cases over concerns about very determined acquisitive strategies being pursued by the management teams. We introduced positions in Novartis, Gartmore, Jardine, and Goldman Sachs, in all cases motivated by an attractive risk-adjusted return potential in our opinion.
Our property positions were also impacted by the repricing of risk assets, although we are satisfied that they performed reasonably well over the period. The fund's exposure to natural gas added positively, after performing poorly in previous periods, but the positions in wheat and corn, whilst prices are not falling, still need to live up to expectations. The gold position also helped over the period, and we reduced this position slightly.
The fund's exposure to risk assets is very close to the maximum limit that we imposed on ourselves at the fund's inception, clearly demonstrating our belief that equity markets (and markets for other growth assets) are discounting a very dire outcome for the globe over the next few years. We think that by embracing risk during times of uncertainty, one would be well rewarded over time, but we cannot even begin to predict when this will happen. We continue to measure all our positions against the objective of attractive risk-adjusted returns, and are excited about the potential in the portfolio, despite the disappointing short-term returns.
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