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Marriott International Growth Fund Acc - News
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Marriott Int Growth (Acc) comment - Mar 19
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Monday, 10 June 2019
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Fund Manager Comment
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Global equity markets have staged a remarkable comeback in 2019 after a dismal end to last year. Performance tables are no longer drenched in red and most markets are in positive territory year-to-date, confounding those who cashed in early. Patience it seems, is indeed a virtue, as too is a strong stomach needed to tolerate the gyrations which seem to define modern equity investing.
The explanation for last year's market fall has been the main reason for this year's rise. Like it or not, the US Federal Reserve Bank is still the leading influencer of global monetary policy. In 2018, higher US interest rates badly affected nearly all market classes. This year, the Fed's policy U-turn has had the opposite effect. Last December's 'dot-plot' projection for two interest rate hikes in 2019 has been changed to precisely none. The Fed now expects just one quarter point rise in 2021. Markets (the ultimate judge and jury) actually think that the Fed could even cut rates later this year.
Such a simple explanation for the drama experienced over the last few months seems to be too easy. Of course, there are many other sub-plots going on behind the scenes. For instance, corporate results year-to-date have generally been quite good. The market, however, has become accustomed to the gentle manipulation of quarterly earnings expectations, so much so that in the US at least there are typically few earnings 'surprises' any more. As a consequence, greater attention than ever is paid to the accompanying statement from the CEO. This information is 'in the market' in an instant, of course, and we still find it far more valuable to speak to the management one-on-one or attend annual general meetings when boards are frequently put on the spot by grumpy shareholders with time on their hands.
These days, we are awash with data, yet markets still seem able to only concentrate on one thing at a time. In December, talk was of a growing crisis between the US and China as Trump declared his support of trade tariffs and investors quickly calculated the impact. Today, the US-China talks barely merit a mention. The US president remains obsessed with building a Mexican wall and the like, whilst the UK and Europe are obsessed with Brexit. Both areas are complex for entirely different reasons. The exoneration of Trump by the Robert Mueller report into collusion with the Russian government strengthens the Republican's grip on power as the 2020 election campaign approaches. In the case of Brexit, currency markets in particular seem to have given up predicting any outcome, good or bad. Politicians have dug themselves into such a deep hole that Brexit may be deferred for some time to come. Just about every outcome is possible, from a second 'people's' referendum, to a customs union or simply revoking Article 50, meaning no Brexit at all. A 'no-deal' Brexit would be the worst option in the near term, but the current crop of politicians must realise that few of them would keep their jobs, if ever this came to pass.
The investing world, therefore, remains as it typically does; frustrating and unpredictable. Thankfully, despite the noise, the companies in our funds show much more stability when it comes to earnings and dividend growth. There are some tricky areas. Profit margins, for instance, are sometimes a little thinner than we would like, and valuations are relatively full. With inflation still very low, however, it is often hard for businesses to justify price rises when consumers now expect the opposite. The world is also getting smaller. The list of sectors into which we are happy to invest seems to shrink every year whilst the number of basket-case economies, Venezuela being the latest but certainly not the last, reduces the investable universe, even before we have studied individual balance sheets.
There are, nonetheless, still many companies which pass through our filtering process and are well placed to benefit from future economic growth. Macro-wise, global GDP is forecast to reach 3.3% this year and slightly more in 2020. Modest, perhaps, but still significant relative to short-term interest rates and inflation in most major markets. As ever, therefore, there is still plenty to go for, especially for those looking for reliable income streams where equities still command a significant yield over cash and government bonds, a state of affairs which is likely to prevail for some time to come.
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Marriott Int Growth (Acc) comment - Jun 14
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Friday, 29 August 2014
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Fund Manager Comment
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Major equity markets have experienced a measured six month trading period in the first half of 2014. In sterling terms, US equities led the way with a gain of 3.1%, but year to date, both UK and European equities are in modestly negative territory. This is thanks in no small part to the strength of the Pound which has gained 3.3% against the Dollar and 4% against the Euro. The surprise package has been the performance of bond markets. Sterling bonds have gained 3.5% over the six month period to the end of June whilst global bonds have gained 2.1%. When US Federal Reserve Bank chairman trigged a 'taper tantrum' last May by announcing that the end of quantitative easing was in sight, most investors reasoned that the next move for bond prices would be down, as yields rose to compensate for the likely ensuing hike in interest rates. Their conclusion was probably right but their timing was some 12 months early. Now, however, with both central banks on either side of the Atlantic openly speaking about tightening rates, the end of an unprecedented period of cheap money is fast approaching. Whilst, logically, this should already have been factored into valuations, the likelihood is that markets will correct when the first hike eventually arrives for the circular reason that the reaction to such a move is itself uncertain. We will be in short term unchartered territory and this could create an interesting buying opportunity.
Elsewhere, large companies have enjoyed a reasonable period of growth after underperforming smaller companies in 2014. Again, this move in 2014 was surprising as smaller companies typically suffer more in a rising interest rate environment as the cost of debt rises and the availability of bank loans declines. However, GDP growth has been far better than expected. In the UK it may well breach the 3% level in 2014 and with sterling strong, domestic, non exporting UK companies have been generally doing well. Latterly, the quest for yield has also been uppermost in investors' minds, hence the recent rotation into safer territory in anticipation of the long awaited rate hikes.
As the artificial reasons for keeping rates lower for longer than necessary dissipates, so central banks will find themselves reacting to the return of the old enemy, inflation. In recent times, central banks have been far more concerned about deflation, or falling prices, and have been keen to stimulate the economy as required. This has meant lower rates and extended QE in the US, UK and most spectacularly of all in Japan where the process has coined its own name - Abenomics. In Europe, however, deflation remains a real worry. GDP growth is patchy and although the eurozone crisis has abated, growth is elusive, even in Germany and especially in France and Italy which are both struggling with a top heavy government and lack of investment.
The UK is probably in the sweet spot right now with good growth rates, low interest rates and a small amount of inflation. The strength of the currency is a worry for exporters, however. We have seen a couple of major companies warn on profits for forex related issues (i.e. sterling strength) and this will continue if exchange rates remain at their current elevated levels.
All things being equal, we believe that we are at the start of a good period for equity markets, rate hikes notwithstanding. Unemployment is falling, corporate growth is in evidence and rates will be low for some time to come, even if they settle at a higher level than today. Geopolitical risks, as ever, remain but it is worth noting that the situation in the Crimean Peninsula and the Ukraine has abated and that Russian equities have regained nearly all of the ground lost in the early days of the crisis. This was almost unthinkable just 3 or 4 months ago.
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Marriott Int Growth (Acc) comment - Mar 14
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Thursday, 5 June 2014
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Fund Manager Comment
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2014 has started on a quiet note, at least for the three major markets represented in the Fund (the fourth major market, Japan, has had a dreadful start to 2014). As yet, the problems in the Crimean peninsula and the Ukraine have not had a serious impact on markets, but we are mindful that this could change very quickly.
After a stellar 2013, the US has been playing a waiting game in two main areas. Firstly, over the timing of the first interest rate hike for many years and, secondly, whether earnings in 2014 will justify the market rally in 2013.
The backdrop for further equity market gains in the US is encouraging. Markets have taken the impending end of Quantitative Easing in their stride, in no small part thanks to the careful policy guidance which the Federal Reserve Bank has been filtering into the market. In other words, there have been no surprises to date, and markets, of course, hate surprises. Newly elected Fed chairman Janet Yellen has been keen to extend the policy of her predecessor in carefully explaining that interest rates may start to rise whilst being sufficiently vague in terms of using any particular data point as a trigger for this to occur. The key economic release to date has been the unemployment rate, which has been widely used by policy makers on both sides of the Atlantic as an excuse to keep interest rates lower for longer. The snag is that the unemployment rate has been falling faster than predicted, whilst the participation rate, defined as the number of people actively seeking work, has also been falling. To confuse matters further, inflation has also been falling in no small part thanks to lower energy costs whilst the wider economy, measured by an abundance of manufacturing data, is still accelerating. What we appear to be faced with, therefore, is a relatively benign investment climate, the biggest threat to which is corporate earnings (or lack of) rather than macro events. We and the market will, therefore, be watching first quarter earnings in April with particular zeal.
In the UK, a similar issue exists in terms of the point at which interest rates might start to rise. As in the US, inflation is falling, the recovery is gathering momentum, assisted by a buoyant property market, and the currency is strong. The impending 2015 general election means that politicians are already interfering with open markets more than ever and both the energy and insurance markets have reacted badly to the clumsy, clammy hands of politicians attempting to point score in the run up to electioneering proper. This, and sterling strength, is probably the greatest threat to the UK equity market right now providing that earnings momentum can be sustained.
In Europe, every day that goes by without another problem marks a day closer to resolution of the eurozone crisis. The transition from recession to growth is, however, proving to be painfully slow. Unemployment remains stubbornly high and the Euro strong at a time when the peripheral member states need export growth rather than cheap imports. We do not expect any miracles in 2014, however, and our focus within the Fund remains on international companies such as Nestle rather than businesses relying on domestic growth.
In summary, therefore, all eyes will be on corporate earnings rather than any major policy shifts. With markets entering a period of stability, dividends will most likely constitute an important component of total returns in 2014 and this remains an area where the Fund is heavily biased.
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Marriott Int Growth (Acc) comment - Sep 13
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Monday, 30 December 2013
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Fund Manager Comment
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Although the International Growth Fund can invest into bonds (and, indeed, has done so many times in the past), the current weighting to this asset class is zero. Whilst the rotation out of bonds and into equities has not yet begun in earnest, it is hard to make a good case for locking into yields which will invariably lose money in real terms over most investment time periods. Bonds have, of course, been suffering a poor year to date as the threat of higher cash yields and the possible tapering of Quantitative Easing have all pushed bond yields higher and prices lower. We expect to maintain our zero weighting for some time to come.
Equities have been a net beneficiary of this move, in part because other asset classes appear unattractive but also because economic growth should lead to a more benign backdrop against which equities can prosper. Property shares, where this Fund has a 15% weighting, have not yet benefited from the latest equity market rally. Higher borrowing costs have led to nervousness over the extent to which property companies can maintain margins but we think that this fear is misplaced. Most of the companies in the Fund have recapitalised themselves significantly over the last few years since the 2008 banking crisis and enjoy high occupancy rates and strong balance sheets. We think that a re-rating will occur sooner rather than later, underpinned by economic growth in the US and UK, where most of our holdings are located.
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Marriott Int Growth (Acc) comment - Jun 13
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Wednesday, 18 September 2013
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Fund Manager Comment
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The Marriott International Growth Fund fell by 1.8% in US Dollar terms during June. Global equities fell by 2.9% with strongest performances coming once again from the US. Emerging markets were again relative laggards, falling by 6.8% in US Dollar terms over the same period.
Global equities weakened during the month as US Treasury yields rose on worries that the Federal Reserve Bank was considering tapering off its programme of Quantitative Easing, buying bonds in exchange for improved liquidity in the banking system. By the end of June, US 10 year Treasury yields had risen to 2.5% from a low point of 1.6% just a few weeks earlier. This led to a sell off across the investable universe, from bonds to equities, commodities and even gold as investors reined in borrowing in anticipation of higher interest rates and shifted into short-term risk free assets (cash).
Whilst the rise in bond yields has been quite sudden, we have long argued that government bond markets appeared to be distorted and that a yield of less than 2% was effectively locking in a loss in real terms, after stripping out the impact of inflation. Bond markets have been driven higher in part by the Quantitative Easing process and technically it makes sense for prices to reverse if this process is coming to an end.
After a strong few months for equity markets, some consolidation is likely at current levels whilst the market digests the latest raft of economic data and analysts begin to sharpen their pencils in anticipation of the second quarter earnings figures due out in July and August. These will give a better indication as to whether the recovery is filtering through to companies in the form of better profits and higher margins. With income still high on many investors' agenda, we still expect support for the strong dividend paying companies in the Fund, notwithstanding that valuations in a number of instances no longer offer the value they did in 2012.
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Marriott Int Growth (Acc) comment - Mar 13
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Thursday, 23 May 2013
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Fund Manager Comment
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The Marriott International Growth Fund gained 8.2% in US Dollar terms during the first quarter of 2013. This performance reflected a generally strong period for global equity markets whilst a number of other asset classes, notably government bonds, lost ground. Whilst the Fund has the ability to invest into fixed interest securities, the zero weighting in this asset class reflects our generally cautious attitude towards government debt in particular whilst more attractive yields can be found elsewhere and in international equities in particular. The Fund's performance was distorted to some extent by currency movements, notably the strength of the US Dollar which gained nearly 7% against sterling and 3% against the Euro since the start of the year. This dampened returns from internationally diversified portfolios measured in dollars but had the opposite effect on non-dollar denominated accounts. Global equities rose by 6.6% during the quarter led by the US and Japan. Once again, emerging markets were relative laggards falling by 1.9% in dollar terms over the same period.
The Fund remained consistently above its yield benchmark throughout the period, ending the quarter with a gross yield of 3.5%, ahead of the 1.9% composite benchmark drawn from the JP Morgan Global Government Bond Index and the S&P500 equity index.
The strength of the equity market was at odds with the disappointing economic news from the UK and, in particular, the Eurozone. China, too, is struggling to make the transformation from a rapidly growing emerging market to a world superpower, a problem reflected in the relatively disappointing returns from Asia during the quarter.
On the other hand, the US economy continues to gain momentum. Whilst the pace of growth is subdued by historic standards, it is growth nonetheless and much of the stock market's recent strength has been based on the assumption that US growth will eventually lead to a global recovery. Certainly, despite the problems in Cyprus, the Eurozone crisis feels very much like yesterday's story even if the core problems still remain.
Japanese equities enjoyed a stellar quarter, however, even after allowing for the sharp depreciation in the value of the Yen. In a concerted attempt to stimulate the lackluster Japanese economy, the newly elected central bank Governor, with the support of newly elected Prime Minister Shinzo Abe, has embarked upon a course of aggressive quantitative easing. This policy has flooded the market with liquidity and driven Japanese equities higher (and the Yen lower). Shock economic tactics of this nature depend upon economic recovery arriving sooner rather than later and we are not convinced. Japan remains one of the highest indebted nations in the world and has been on a downwards spiral since the late 1980s.
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Marriott Int Growth (Acc) comment - Sep 12
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Wednesday, 14 November 2012
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Fund Manager Comment
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In our June 2012 commentary, we encouraged investors to build up equity positions in dividend rich sectors such as those contained in the three Marriott International Funds. Valuations were relatively modest and sentiment was low as a result of sustained weakness in most global economies. The third quarter of 2012 has rewarded such an approach, with a return of 7% from global equities in US Dollar terms lifting gains for the year to date to 13.4%.
Strangely, not that much has really happened on the ground to justify the swing in confidence which we have experienced in recent weeks. Globally, unemployment remains a serious problem, most notably in the Eurozone, where one quarter of the workforce in Greece and Spain are now out of work. Nor, too, is there ample evidence of green shoots of recovery in any major market. Economic data readings are erratic and suggest that most markets are bumping along the bottom and will continue to do so for the foreseeable future as governments continue to search for a mythical silver bullet to end their respective debt crises.
One 'solution' was presented to the market in September in the form of QE 3 or 'QE Infinity', the title given to the latest round of monetary pump priming from the US Federal Reserve Bank. Like most movie sequels, subsequent rounds of QE have been far less convincing than the original. Nonetheless, the promise of low interest rates at least until 2015 together with the determination to improve the cost and availability of credit led to a sharp rally in risk assets, including precious metals, as investors (ourselves included) deduced that higher inflation was a likely consequence of this latest policy move. Whilst we welcomed the market rally which extended into credit markets as well as a predictable (if short lived) rally in raw commodity producers, the fact remains that repaying years of accumulated debt is going to take a considerable time and will not necessarily coincide with any political election cycle.
Amidst all of the economic noise, it is easy to forget that a number of businesses continue to go about their work efficiently and profitably. Whilst these businesses are not immune from market cycles, the diversity and quality of their product portfolios means that they can ride out short term volatility, often using their cash flow to enhance earnings by accumulating rivals along the way. Whilst the International Growth Fund has a mandate to invest across a range of asset classes, including fixed interest, the low redemption yields on offer, especially from US, UK and leading European government issues means that this remains an area where we are exercising caution. As a consequence, our asset allocation remains heavily tilted towards quality international equities where net yields remain far higher than equivalent bond yields, with the built in prospect of future growth
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Marriott Int Growth (Acc) comment - Jun 12
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Wednesday, 15 August 2012
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Fund Manager Comment
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The second quarter of 2012 was another difficult investment period for investors. Global equities fell as the recovery in the US faltered and the prospects for the Eurozone worsened. Once again, despite appalling fundamentals, government bond yields continued to sink as investors turned to what they considered to be the ultimate safety parachute. The International Growth Fund fell by 2.4% over the second quarter taking the gain over the course of the first half of 2012 to 2.3%.
The reason for this latest bout of uncertainty was, one again, Europe. Although some progress appeared to be made at the latest European Summit in June, the fundamental problems remain unresolved. All Eurozone member states currently enjoy the ability to arrange their own tax budgets. As is now widely known, many Eurozone members, for e.g. Greece, have abused this arrangement. The establishment of a central Eurozone fiscal arrangement has been put forward as a way of restoring confidence to the financial system in the longer term by allowing countries to pool risk. This would theoretically reduce borrowing costs for the weaker members as the risk of default would shrink allowing governments to begin repaying debt at more affordable rates. It would also lift equity markets and, by definition, lead the way to a more sustainable economic recovery. There are, however, a number of barriers to this welcome solution. Firstly, some countries, notably Germany, are reluctant to concede fiscal control to, in their view, a less effective central European agency. Secondly, because such a move would involve a change to the original European Treaty of Maastricht, it would almost certainly require individual countries to hold a referendum.
Despite Germany's reticence, it is difficult to see how the currently broken Eurozone model can be repaired without fiscal union. For as long as Germany remains unwilling to move in the direction of a federal Europe, we believe that equity markets will remain choppy at best and there may be no quick solution to Eurozone problems. The catalyst to a solution will probably be when Greece completely collapses under the twin burdens of debt and austerity and is forced out of the Eurozone altogether. Greece may be followed by one or two of the other peripheral countries such as Spain and Portugal in quick succession. An alternative is that Germany, unable or unwilling to shoulder responsibility for Southern Eurozone countries, leaves the Eurozone itself and returns to the shelter of the Deutschemark.
Whilst in the short term, it is hard to see much evidence of recovery, longer term there remains compelling reasons for building up equity positions in dividend rich sectors. As both the UK and US government embark upon another round of Quantitative Easing, the pressure on government bond yields will, we believe, subside and subside quickly. If there is one major risk to the market today, then we do not believe it rests with equity markets, but with leading government bond yields which we fear will soar once investors decide to move back into riskier assets. In many sectors, wide discounts to underlying asset values persist in the market. These anomalies, whilst frustrating, are part and parcel of equity investing. Dividend pay-outs take away some of the sting whilst a recovery is awaited and selling at rock bottom prices is rarely the best way of creating wealth in the longer term. On the other hand, government bonds and cash deposits guarantee a depletion of capital in real terms at current prices and we remain underweight in bonds whilst continuing to advocate a balanced portfolio of income orientated equities and property shares.
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Marriott Int Growth (Acc) comment - Mar 12
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Monday, 21 May 2012
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Fund Manager Comment
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The first quarter of 2012 marked a return to relative normality for international markets. This time, it was corporate rather than geopolitical issues which finally gave equity markets a genuine reason to rally. However, the macro background was significantly helped by the European Central Bank whose latest Long Term Refinancing Operation eased the pressure on Europe's liquidity starved banks in a stroke. The International Growth Fund gained nearly 5% in Dollar terms against a backdrop of broadly rising global stock markets. On the other hand, international bond markets suffered as yields drifted higher, depressing prices as investors sold down low yielding Government bonds. It is 30 years since bond investors on both sides of the Atlantic have experienced a decade of negative returns and for much of this time bonds have outperformed equities, defying the general history of stock-market investing. Perhaps more interesting is the fact that so many major pension funds have become obsessed with bond investment at the expense of equities and few bond traders will have ever experienced a deep bond bear market. From an economic perspective, initially it does not appear to make sense that bonds should start to under-perform at a time of lacklustre economic growth. Markets are, of course, nothing if not forward thinking. If one was to use history as an example, the economic stagnation of the 1930s proved to be far more lucrative for equity investors than for bond investors. Historically, longer term equity rallies begin when equities look cheap, not when economies are robust and today, the yield comparisons between bonds and equities make the argument for equities quite compelling.
Since the start of the century, traditional measurements of equity valuations have been distorted by one major crisis after the other. Whilst this is all part of the risk element of equity markets, investors cannot be blamed for suffering fatigue from the eurozone crisis, the banking crisis, the housing crisis, 9/11 and so on. The eurozone crisis has, of course, yet to be fully resolved and we expect more turbulence as the year progresses. Nonetheless, the backdrop for equity markets looks a little better than the same time last year and we remain overweight in equities (including quoted property companies) relative to bonds. To a greater extent, this position is determined by low bond yields and the negative real returns on offer here after the impact of inflation is discounted. On the other hand, equity yields are generally good to excellent. Corporate cash balances in our core sectors are healthy meaning that dividend cover is improving and companies are already pricing in dividend increases which, in a normal cycle, provides protection against inflation. The downside of a high equity approach in the near term is volatility. The Fund's concentration on high yielding blue chip companies does, however, dampen this volatility whilst the resulting cash flow from dividends smoothes returns over the medium and longer term.
In terms of regional exposure, the Fund maintains a higher weighting to the US and UK at the expense of Europe. We still expect GDP growth in the US in 2012 to outpace all other major markets whilst the relatively low level of exports which the US sends to Europe will provide some insulation from the fallout in the eurozone. In the absence of so many credible alternatives, we remain of the view that high yielding blue chip equities across a range of diversified sectors remains the investment of choice in the current climate.
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Marriott Int Growth (Acc) comment - Dec 11
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Monday, 19 March 2012
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Fund Manager Comment
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The International Growth Fund gained 0.9% in Dollar terms in 2011 against a backdrop of broadly declining global stock markets. The MSCI World Index fell by 6.9% during the year due to slowing economic growth and the impact of the Euro zone crisis. After two years of under-performance, value and yield orientated blue chip companies had a good year in relative terms, which translated into positive returns for the Fund for the whole of 2011.
The Fund remains overweight equities relative to bonds (fixed interest). Whilst we do not expect interest rates to rise in the near term in any major market, Government bonds are well priced and the scope for gains is small whilst the threat of a correction is high. Investors should be wary of any market which has been driven higher purely on grounds of fear and the heights to which the US Government market has been propelled (as well as the Dollar) suggests a level of risk aversion which can be reversed very quickly.
We do not, however, expect the Euro zone crisis to abate any time soon. Greece appears to be edging towards an exit and this will mean further volatility and protracted pain for Europe's banks where we have virtually no exposure. The Fund instead tends to concentrate on holding companies in staple businesses such as food, property, drink and telecommunications. Such sectors are often dominated by higher yielding companies, in part because they have been steadily increasing dividends over the past few years whilst their share prices have remained static. The Fund is now yielding 4.6% gross and is edging towards 5% as we look to lock in attractive yields on lower days for the market (of which there have been plenty in 2011).
In terms of regional exposure, the Fund has a higher weighting to the US and UK at the expense of Europe. We expect GDP growth in the US in 2012 to outpace all other major markets whilst the relatively low level of exports, which the US sends to Europe, will provide some insulation from the fallout in the Euro zone. Emerging markets, on the other hand, had a bad 2011, falling on average by 20% in sterling terms as investors reduced risk. Whilst we do not have any direct exposure to such markets, all of the underlying constituents of the Fund have important subsidiaries in these regions which we expect to drive growth in the medium terms as the balance of economic power continues to shift eastwards and, in the case of America, towards the south.
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Marriott Int Growth (Acc) comment - Sep 11
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Thursday, 22 December 2011
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Fund Manager Comment
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The third quarter of 2011 represented one of the most difficult quarters in financial markets since the collapse of Lehman Brothers marked the emotional low point of the banking crisis in 2008. In some ways, these latest falls were worse, coming as they did at a time when markets were starting to show modest signs of recovery. In the event, the massive structural issues facing Greece and the lack of firm leadership by the European authorities precipitated a flight to safety to US and UK government bonds, despite the low interest yields on offer and the prospect of guaranteed negative real returns.
Whilst low yielding sovereign debt markets in the US and UK appear to be overvalued, corporate bond markets have been negatively affected by the recent market turbulence. Excluding financial borrowers whose debt has been weak for more fundamental reasons, a major cause of corporate bond price weakness has been illiquidity accompanied by a relative lack of transparency in pricing thinly traded bond issues. These are difficult times for bond investors and we remain underweight, preferring government index linked issues for safety and very short dated corporate issues for yield although neither represents especially good value, in our view.
The majority of equities in our International Funds have exceptionally strong balance sheets and remain long term safe havens because of the defensive nature of their earnings, their liquidity and their high dividend yield. They, however, have been subject to high levels of volatility. Liquidity is generally considered to be a strong attribute of any security but in times of crisis it can be a hindrance as hedge funds and large programme traders sell their most liquid assets to meet margin calls, irrespective of the fundamentals. Certain sectors have been avoided. For example, we continue to avoid bank stocks as over-regulation and, in many instances government ownership, will subdue earnings for some years to come.
Whilst Europe's problems have been reflected in the dire falls in their equity markets over the quarter, America at least is showing a little more resilience. The latest US GDP numbers show a modest improvement in this economy although the fragility of this recovery will not be helped by the recent surge in the Dollar. Whether committing fresh capital to equity markets or reinvesting income, it is important to remember that the most attractive buying opportunities often occur in an asset class when the majority of investors are fearful, become forced sellers or have just given up. Recent acquisitions by a number of major quoted companies show that they see excellent value in the stock market. United Technologies, for example, paid a near 40% premium to the market price to acquire aircraft components manufacturer Goodrich whilst Hewlett Packard paid a similar premium for the UK software company Autonomy. A surprising number of deals of this nature are currently taking place whilst the number of new issues has all but dried up. For investors who are prepared to be patient, equity market falls of this magnitude represent an opportunity rather than a threat and we are selectively adding to holdings on those on weaker days of the market.
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Marriott Int Growth (Acc) comment - Jun 11
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Thursday, 8 September 2011
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Fund Manager Comment
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Market sentiment in the second quarter of 2011 was dominated by Europe and, in particular, the threat posed by a Greek default. After weeks of procrastinating, the European Union and the International Monetary Fund eventually agreed to bail out Greece after the Greek parliament had agreed to implement an austerity package designed to reduce their crippling level of debt.
Ironically, Greece's problems saw the Euro rally during the quarter, by 2.2% against sterling and by 2.4% against the Dollar perhaps as a result of the expectation that Greece was likely to be expelled from the eurozone and that the Euro would be much stronger as a consequence. A more likely view, is the possibility of a Euro style Brady bond package of the type used to bail out a number of emerging markets in the late 1980s. (Brady bonds were issued as special bonds backed by the US Treasury and allowed the countries concerned to restructure their finances without defaulting). A Euro version would throw a lifeline to many of the banks currently exposed to the Greek crisis and also provide a solution to the problems faced by other fragile Eurozone members such as Ireland and Portugal. It would, however, require decisive action by the EU and the IMF.
Elsewhere, equity market returns have been driven as much by currency movements as by genuinely improving fundamentals. In sterling and dollar terms, global equities gained just 0.4% over the quarter after a promising start derailed by the Euro crisis.
Bond investors fared better. Sterling bonds rallied by 2.6% and Dollar bonds by 2.5% as investors decided that interest rates were likely to remain lower for longer. Certainly, there was little rush to buy equities although with inflation still significantly above trend, government bond (and cash) investors appear to be resigned to accepting negative real returns. Equity valuations in general are fair, but the dividend yields of securities in the Marriott portfolios are attractive.
In our view, higher yielding equities in carefully selected blue chip names represent the most sensible way to combat inflation at present. We expect this theme to gather momentum over the rest of the year, as investors focus their equity selections on well-known names in their domestic markets, particularly those paying a good dividend yield. We expect interest rates to remain lower in the UK, Europe and the US for far longer than is generally being recognised. Central banks may use any softening in inflation data as an excuse for this strategy but the reality is that benign neglect of their domestic currencies and any subsequent devaluation is a relatively easy and painless way of improving current account deficits, helping exports and therefore lowering unemployment, something the Obama administration will be desperate to achieve before the 2012 election campaign gets underway. International equities should benefit in this environment and here, The Marriott International Growth Fund is especially well positioned
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Marriott Int Growth (Acc) comment - Mar 11
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Wednesday, 25 May 2011
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Fund Manager Comment
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The Marriott Global Income Fund is currently yielding 3.7% from a portfolio of four investment grade corporate bonds and a small investment in a US Dollar cash fund. After several quarters of falling yields and rising prices, major global bond markets fell back in the final quarter of 2010 as investors reacted to the announcement of a second round of Quantitative Easing. Ten year US Government bond yields quickly moved out from 2.4% to nearly 3.4% in October as concerns rose over the possibility of rising inflation caused by the release of liquidity into the economy and the recognition that, as economic growth accelerates, interest rates are likely to be slowly tightened, possibly as soon as mid 2011. The four bonds held by the Fund are intentionally short dated. Whilst this has a modest effect on running yields (the current yield curve is slightly positive, favouring longer dated issues from a yield perspective) we believe that this is more than adequately offset by the fact that shorter dated issues will be less impacted by higher inflation and rising interest rates, themes which we expect to feature strongly as 2011 progresses. We have also intentionally remained in Dollar denominated issues. Whilst we have the ability in the Fund to buy and hold bonds in other major currencies, none look particularly appealing to us at this stage in the cycle and, given the Dollar denomination of the portfolio, we would prefer to stay currency neutral in the absence of any conviction that holding euros or sterling, for example, would produce a superior return without additional risk.
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Marriott Int Growth (Acc) comment - Dec 10
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Thursday, 24 February 2011
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Fund Manager Comment
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Momentum has carried through into the final quarter of 2010 encouraged by the second round of Quantitative Easing in the US. The similarities with the stock market rally in the early years of the 21st century are uncanny. Then, equities rose on the back of low interest rates and easy credit. This led to a credit bubble, the collapse of which nearly brought the global banking system to its knees. Today, the easy credit has gone but low interest rates remain and conventional monetary stimulus has been replaced by the latest round of a $600bn spending programme by the Fed in an attempt to pump prime a lacklustre US economy. This is a high risk strategy. No one knows for certain whether such stimulus will work or what the longer term consequences will be. In our view, the outcome should provide a major lift to the equity market but the consequences are likely to be a combination of higher inflation and a weaker US Dollar. This would be politically and economically desirable for the US economy whose export market will receive a boost whilst simultaneously providing support for asset classes such as equities, precious metals and property prices. It will, however, not be good for US bond markets, particularly at the longer end of the yield curve. This is not an issue with which we have to grapple for this fund, but we would otherwise remain very wary of this sector, inflation proofed issues aside. Investors looking for yield should continue to look towards quality equities to provide an alternative income stream to bond markets with built in protection against inflation. It rarely pays to 'fight the Fed' and with GDP and manufacturing data continuing to improve, we believe that this equity market rally has some way to go. The recent US mid term elections have proved to the incumbent Democrats that the voting public are interested in the economy first and foremost and we expect the Obama administration to stop at nothing to make things happen before the next presidential elections in 2012.
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Marriott Int Growth (Acc) comment - Jun 10
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Wednesday, 8 September 2010
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Fund Manager Comment
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The Dollar denomination of the Marriott International Growth Fund has subdued returns from international equities in the Fund in the second quarter of 2010. The flight to quality has benefited the traditionally risk averse currencies such as the Dollar and the Yen whilst the Euro in particular has been sold down aggressively on the back of the ongoing debt crisis in the Euro zone. Our cash and bond holdings in the Fund have been weighted in favour of the Dollar and we have long since sold any Euro denominated bonds. As the global economy slowly improves, we expect equity markets to reflect a return to growth in higher prices. However, volatility is still very high and the turbulence which we have experienced in May and June to date will continue for the foreseeable future. Cash flow remains paramount to our stock selection to support dividend payments both now and in future quarters. In summary, we expect modest growth in corporate profits for the rest of 2010. The jobless recovery in the US and the debt crisis in the Euro zone will prevent any meaningful market rally from developing any time soon and put more emphasis on dividend payouts as a critical component of total returns.
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Marriott Int Growth (Acc) comment - Mar 10
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Thursday, 24 June 2010
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Fund Manager Comment
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The International Growth Fund has in recent months been cutting back exposure to conventional bond markets in the face of rising inflation. Latest figures show that we were right to be concerned. Inflation has rebounded vigorously over the course of the last few months as energy prices and sales taxes have been moving higher. We expect this momentum to continue as the year progresses and for interest rates to begin rising gradually in the US by the 4th quarter of the year. This may not necessarily be unfavourable for equities; indeed some inflation should be broadly positive for the real assets invested into by the Fund namely international equities and property companies. In the meantime, our dividend streams remain robust.
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Marriott Int Growth (Acc) comment - Dec 09
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Wednesday, 24 March 2010
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Fund Manager Comment
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After a strong period of recovery in late 2009, it would be reasonable to expect some consolidation within the fund in 2010. However, those businesses which have led the market higher in recent months have often been those companies which were hardest hit by the credit crisis and whose weakened balance sheets prevent them from paying dividends which are the lifeblood of the Marriott International Growth Fund. As a result, whilst the Fund fell in value in 2008, the falls were muted compared with large sections of the market.
Conversely, recovery was also a relatively modest affair set against the performance of certain sectors in 2009, notably financials and technology. This is to be expected in a fund of this nature where Marriott's income focused investing style seeks dependable growth and steady income streams rather than the cyclical boom and bust of riskier areas of the market. Marriott looks for businesses which can outperform through a variety of market cycles remaining focused on fundamental value, old fashioned cash flow and strong management teams, attributes which lead to medium and longer term performance in more difficult times as well as in periods of rising markets.
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Marriott Int Growth (Acc) comment - Sep 09
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Thursday, 17 December 2009
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Fund Manager Comment
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The Marriott International Growth Fund enjoyed a good October in absolute as well as relative terms. Dollar weakness provided favourable momentum for the fund and most securities in the fund performed reasonably well against a backdrop of falling equity indices. Profit taking at the end of the month ended several weeks of rising markets and we now expect equities to remain range bound as the year progresses. On the one hand, we appear to be through the worst of the credit crisis although the banking industry in the UK and US still has to suffer the indignity of government interference and likely break-up of several major names such as Lloyds TSB and Royal Bank of Scotland. On the other hand, Q3 results from S&P500 companies have been largely better than expected and fears that Q2 results had been flattered by one off items have been wide of the mark. Nonetheless, valuations are now offering fair rather than good value and we expect most of our returns between now and the year end to be generated by income rather than capital gains.
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Marriott Int Growth (Acc) comment - Dec 08
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Friday, 20 March 2009
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Fund Manager Comment
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Portfolio Review
Inflation Protected bond exposure maintained at around 12% overall.
AAA rated conventional bonds increased and exposure increased to 12%.
Equities now approximately 68% of the total.
Reduction in exposure to banks whose dividend may be under threat. Increase in Fixed Interest weighting.
Defensive sectors still generally preferred, including Energy, Utilities, Tobacco and Telecoms.
No real estate exposure in portfolio.
Yield Comparison at 31 December 2008:
- MIGF 5.66%
- Yield target 2.74% (JPM Global Gov Bond 2.43%, S&P 500 3.04%)
- US CPI 1.1% year-on-year (2.0% excluding Food and Energy)o
Equity Market Review
Markets ended the year on a relatively good note after an appalling 2008. In dollar terms, global equities lost 20.9% of their value in 2008 despite double digit rallies in several markets in December. Once again, local currency returns were distorted by some momentous currency movements. In Europe, for example, markets gained a modest 0.75% in December but the swing of the euro against the dollar meant that such a movement translated into a gain of 10.6% in dollar terms.
The December rally was triggered by the realisation that interest rates would continue to be cut in all major markets in response to the growing threat of deflation. Ironically, deflation is generally considered to be negative for equity markets but there was a growing sense that the sell-off in October and November in particular had been overdone. Inter-bank rates are beginning to ease and low savings rates will eventually encourage savers to seek yield elsewhere. With the S&P 500, for example, yielding over 3% compared with a US discount rate of 0.5%, there is ample encouragement for investors to look to equities to provide income over bonds.
Elsewhere in the world, Asia and emerging markets generally enjoyed something of a rebound from the carnage of the previous few weeks and months, gaining 1.8% and 4.4% respectively in local currency terms. We do not, however, believe that such movements represent anything other than a relief rally at this point. It will take some time for the impact of lower interest rates to filter into the real economy and our inclination remains that of selling critically weakened companies (e.g. banks) into pockets of strength whilst building up positions in more robust businesses with strong cash flow, low debt and a progressive dividend policy on those darker days in the market.
From a currency perspective, we believe that sterling is probably in oversold territory and expect some of the recent movements to be reversed, particularly against the dollar, as 2009 progresses. Longer term, we remain nervous of the growing public sector borrowing requirements in most major markets (perhaps with the exception of Japan) but feel that President-elect Obama's spending plans will have a particularly detrimental impact on the US dollar over the medium term once the currency market's present obsession with a flight to safety has run its course.
Bond Market Review
Government bond markets finished 2008 with a flourish, returning 7.1% in dollar terms in December to bring the total return for the year to 12%. Dollar returns were magnified in December thanks to currency weakness which saw the dollar decline by 10.1% against the euro and by 5.4% against the yen. Against sterling, the dollar continued to make remarkable progress, propelling the gain against the pound to 36% for the whole of 2008.
Elsewhere, all major bond markets enjoyed positive returns in December in local currency terms with just the UK market slipping into negative territory when translated into US dollars. Driven by the fear of deflation (negative consumer price inflation), policy makers have been taking aggressive action to avoid such an outcome by cutting interest rates. Official rates in Europe and the UK are likely to follow the lead of the US and Japan effectively down to zero in an attempt to increase the amount of money in the banking system and economy.
Whilst in the short-term this has been very good news for government bond holders, such action comes at considerable expense in the form of deteriorating public finances and, eventually, higher taxes. The relatively quick response to the threat of deflation by policy makers will hopefully avoid the experience of Japan which is still recovering from policy failures in the early 1990s. Deflation, therefore, should generally be treated as bad news. Near-term price movements may be good news for bond holders but this is of less significance than the damaging consequences to the wider economy which such a problem would create.
Corporate bonds have begun to see pockets of interest from income-conscious investors. As some normality returns to capital markets, we believe that corporate bond markets will benefit, particularly given the low nominal redemption yields on offer from the government market. This should provide much needed breathing space to those companies needing to roll over debt in 2009, although the higher yields on offer from such activity may subdue the underlying equity of those companies in question who will see profits margins fall as borrowing costs rise.
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