The global equity markets’ streak of seven straight months of positive performance ended abruptly in September. The Fund’s benchmark returned -2.3% for the month while the Fund returned -3.7% , the underperformance being mainly due to the Fund’s overweight in Europe.
Investor sentiment waned in September due to the appearance of a global economic slowdown, central banks signalling the tapering of stimulus programs, and continued supply chain disruptions. Investor worries were exacerbated by the Evergrande crisis in China which, if not resolved, threatens to become the largest debt default by a company in Asia.
In the U.S., September kept its reputation as a historically weak month for equity performance intact with nearly all major equity indices finishing down. Adding to the previously mentioned concerns of a slowing global economy and central bank tightening discussions, uncertainty over the U.S. debt ceiling and rising inflation drove equities into negative territory.
In Europe, equities ended the month in negative territory, with the MSCI Europe down -4.7%, ending a seven-month winning streak. A surge in government bond yields drove investors out of high-growth sectors such as technology into economically sensitive banking and energy stocks, sectors that the Fund has historically been underweight. Inflation spiked to 3.4% year over year from 3.0% year over year and is the highest since 2008.
In Japan, equities rallied on the news that the Bank of Japan would hold its accommodative monetary policy and economic reopening as COVID-19 cases declined. Asia non-Japan stocks struggled to shake off contagion fears surrounding the indebted developer China Evergrande which could ripple across the world economy, markets, and the financial system.
Emerging markets outperformed developed markets as the MSCI Emerging Markets Index was -4.0% vs. the MSCI World Index that ended the month -4.2%.
Individual stock selection and currency were the main drivers of negative performance versus the benchmark in September. Approximately 78 bps separated the top contributor and largest detractor. As of 30th September, the top 10 holdings accounted for approximately 29% of the Fund’s assets, with the largest position approximately 4.3% of the portfolio. Regional and sector exposure remained relatively unchanged month over month. Underperformance relative to the benchmark was due to the Fund’s overweight in Europe.
The Fund exited three positions during the month and did not initiate any new positions. The Fund exited Intertrust, an international trust and corporate management firm based in the Netherlands, after disappointing news surrounding incremental compliance expenses in the business. The Fund also exited positions in Schaeffler and Balfour Beatty as we were similarly disappointed with results.
CIO and Portfolio Manager
The Fund invests principally in small and midcap listed (or soon to be listed) global equities. Its investment objective is to obtain returns greater than the MSCI All Country World Index SMID Cap unhedged in Australian dollars (‘Index’) over rolling 3 year periods after fees. The Fund’s investment manager, Lizard Investors LLC, uses a value oriented investment approach that seeks to identify and invest in quality businesses that create significant value but are mispriced, overlooked, or out-of-favour. The investment manager believes that unique opportunities exist due to limited available research, corporate actions, or unfavourable investor perception.
1. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. No allowance has been made for buy/sell spreads. Please refer to the PDS for information regarding risks. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
2. Inception 1st April 2015.
3. Annualised standard deviation since inception.
4. Relative to MSCI All Country World SMID Cap index unhedged in AUD.
* For further information regarding fees please see the PDS available on our website.
