Commentary

February was an extraordinary month within a normally placid bond market. Catalysed by growing inflation expectations, longer-dated bond yields rose by relatively large amounts and the spread of nominal yields and real yields widened. This had an immediate negative impact on growth stocks, which declined, while reflation stocks rebounded.

We have long argued that inflation is arguably the most significant risk facing the stock market and we continue to vigilantly monitor that risk. Some of the Fund’s positions that should benefit from inflation and performed well, as anticipated, during Feb-21 include ING, Epiroc, Mowi, CME, Vulcan Materials, and Flow Traders. Meanwhile, the Fund’s growthier’ stocks that we anticipate to be most negatively impacted by rising rates were the weaker performers during the month and include, Thermo Fisher, Alibaba, Sunrun, and Electronic Arts. In aggregate the stocks performed as we would expect given an inflation scare, which provides us with a working compass should we choose to tilt the portfolio more meaningfully towards the reflation trade.

The Fund remained relatively unchanged during the month and we added just one ‘growthier’ stock that was sold off during Feb-21. In aggregate, the portfolio remains highly differentiated from the market with 45% invested in the US Vs the Benchmark’s 57%, 27% invested in Europe (ex-UK) Vs the Benchmark’s 13%, and 18% invested in Emerging Markets Vs the Benchmark’s 13%. It is a similar story when viewed along with sector exposure with the Fund meaningfully overweight Materials and underweight Information Technology and does not own a single FAANG stock.

By our analysis, the Fund has an approx. 5.5% FCF yield, 8% revenue growth, and <1x net debt/EBITDA, all of which compare favourably to the market. These factors coupled with our diversification and various risk controls give us confidence in the outlook for the Fund.