Global equity markets strengthen

• Global equity markets strengthened in October upon signs that inflation was starting to slow, which may allow central banks to ease the pace of interest rate increases
• The Fund continues to invest in companies with strong management teams and the ability to deliver sustainable earnings growth
• The Fund returned 5.2% in October, while the MSCI All Country World SMID Index returned 7.2% in Australian dollars

We recently held a Portfolio and Investment Update webinar, along with Q&A for shareholders, which is available below for your review. CPD points are applicable for Australian Financial Planners HERE. 

Top Holdings (alphabetically)

Concentrix Corp

United States

Information Technology

Concentrix Corporation provides technology infused solutions. The Company offers digital customer experience (CX) solutions. Concentrix serves customers in the United States.

Irish Continental Group PLC

Ireland

Industrials

Irish Continental Group, Public Limited Company markets holiday packages and provides passenger transport, roll-on and roll-off freight transport, and container lift-on and lift-off freight services between Ireland, the United Kingdom, and Continental Europe.

Orion Engineered Carbons

United States

Materials

Orion Engineered Carbons S.A. is a global supplier of Carbon Black. The company offers products for coatings, printing inks, polymers, rubber and other applications.

PRA Group

United States

Financials

PRA Group, Inc. provides outsourced receivables management. The Company purchases, collects, and manages portfolios of defaulted consumer receivables.

Sendas Distribuidora SA

Brazil

Consumer Staples

Sendas Distribuidora S/A distributes consumer goods. The Company provides a wide variety of foods, household products, clothes, and toiletries. Sendas Distribuidora serves customers in Brazil.

Global equity markets bounced back in October, after weakening since the start of the year. The Fund returned 5.2% during the month, while the MSCI All Country World SMID Index returned 7.2% in Australian dollars.

Signs that inflation may be starting to slow brought expectations that the pace of interest rate rises would ease, before peaking at a lower level than had been forecast earlier. US economic data continues to weaken, although it appears more robust than the other major economies. Consumer sentiment is still weak despite a tight labour market. The US dollar appears to have stabilised following an extended period of strong appreciation against other major currencies.

The European Central Bank (ECB) raised its benchmark interest rate by 0.75% to 2.00% at its second consecutive meeting in order to control inflation which has reached a 40-year high. The UK equity, bond and currency markets all responded positively to the new Prime Minister Rishi Sunak’s more restrained fiscal policy. In China, President Xi Jinping consolidated political and economic power after securing a third term in office, but offered little sign of an early easing of the zero-Covid policy.

Equity returns varied significantly by region, US smaller companies strongly outperformed non-US shares, while emerging market stocks continued to fall in value. The Fund’s underweighting of the highly valued US market detracted from the Fund’s relative performance in October.

The Fund established a position in Melrose, a UK-based investment holding company, during October. It has a unique strategy of acquiring, improving and then divesting high quality but underperforming industrial businesses. The Melrose management team was established in 2003; it currently owns and focusses its efforts on the GKN group of businesses.

The company has delivered an impressive 21% average annual compound return to shareholders. However, plans announced in September to demerge and list the automotive division led to share price underperformance. The Fund took the opportunity to invest in a market-leading industrial auto and aerospace business, with a world-class management team at a deep discount to the underlying value of the business.

The Fund also invested in Nexi, a leading European payments business, which has a strong position in Italy, the Nordic region and other parts of Europe. The shares significantly underperformed the market, having completed acquisitions just before the global share market began to weaken.

The business is expected to deliver strong secular growth from growing electronic payments in its core geographical areas. The Fund invested in the company, paying a multiple of 15 times its earnings, gaining an interest in a sustainably growing business with significant room to also expand margins.