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Fund Spy: 5 managers that defied the downturn in third-quarter 2019

Glenn Freeman  |  04 Oct 2019Text size  Decrease  Increase  |  
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Stewart Investors is among a handful of global equity fund managers that unearthed good returns in the September quarter even despite a patchy period for markets.

The global economy remained focused on the US-China trade dispute and continued to grapple with below-average growth and waning investor confidence during the third quarter of 2019.

Among some of the largest economies outside North America, India was one of the worst performing equity markets, largely because of its key manufacturing role for both the US and China. Indian equities lost 5.7 per cent in the third quarter, and 3.4 per cent for the year.

Morningstar's Australian research doesn't include any country-specific funds among its global equity fund universe, preferring broader-based international strategies. However, Silver medallist Stewart Investors Worldwide Leaders (4672) has the highest Indian equity exposure, with a 20 per cent weighting as at the end of May 2019.

Over the quarter, Stewart returned 2.8 per cent, significantly outperforming the Indian equity fund market average. But the strategy's 12 per cent return for the year to date fell short of the 18.2 per cent average across Morningstar's global equity category - value and growth blend for the period.

The fund's top 10 holdings include Indian companies Tata Consulting Services (NYSE: TCS), which holds a Morningstar narrow moat, and Housing Development Finance Corp – with weightings of 5.9 per cent and 3.7 per cent.

Populist politics stoke investor fears

Argentina’s political turmoil was the culprit in the Latin America category’s 3.2 per cent loss for the quarter. Populist Alberto Fernandez’s defeat of market-friendly president Mauricio Macri in the primary run-offs in August stoked investor fears, ahead of the presidential elections set for 27 October.

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Argentine equities lost 50 per cent in August alone, a sharp correction after a roaring 32 per cent second quarter gain.

Morningstar Bronze-rated strategy Aberdeen Standard International Equities (4768) held the highest Latin American country weighting of almost 5 per cent as of 31 May 2019.

The strategy's 2.26 per cent return over the September quarter soundly beat Latin America's equity fund average, thanks in part to its limited exposure to the region and emerging countries in general.

Brazil's Banco Bradesco, which comprises a 2.5 per cent portfolio weighting, is the sole Latin American company within the fund's top 10 holdings.

September boost propels Japan

A September run-up helped Japan top all regional categories in the third quarter. Japan also kicked off the 2019 Rugby World Cup on 20 September – the first Asian host nation, which will also host the Tokyo 2020 Olympics.

Optimism for a US-China trade deal propelled its 2.9 per cent gain, though a study conducted by Japan's Rugby World Cup organising committee suggest this event alone could provide a $4 billion economic boost.

With a Silver medal and a Japan equity weighting of 14.2 per cent as at 30 June, Orbis Global Equity Fund (41069) is Morningstar Australia's preferred strategy with a sizeable Japan exposure.

The fund's return of 4 per cent over the quarter beat the average performance of market-specific funds for the period. But year to date, the Orbis strategy return of 13.3 per cent lags the category average of 18.2 per cent.

Japanese conglomerate Sumitomo Corporation ranks among Orbis' top 10 portfolio holdings, with a 2.8 per cent weighting, alongside a handful of other Japanese companies including Honda Motor Co and oil producer Inpex.

With only a slightly smaller Japan weighting of 13.4 per cent, IFP Global (12160) holds a Morningstar Silver. It returned 4.9 per cent for the quarter, and an impressive 23.7 per cent year to date.

Three Japanese companies feature in its top 10 holdings, including weightings of 4.4 per cent for both Nintendo and Japan Tobacco and a 3.8 per cent allocation to brewer Kirin Holdings.

Brexit uncertainty drags on

Brexit uncertainty continued to weigh on UK and European stocks. Markets seem to be pricing in the likelihood of the UK leaving the European Union without a formal deal on 31 October.

IFP Global, as detailed above, holds the highest weighting of 20 per cent to UK-based companies.

Next in order of UK exposure is Nikko AM Global Share (6272), with a 15.6 per cent weighting as of 31 August. This strategy delivered returns of 2 per cent during the third quarter.

This beat both the MSCI UK All-Cap Index and MSCI Europe Index, which posted losses of 2.2 per cent loss and 1.7 per cent for the quarter.

Wide-moat British consumer goods multi-national Unilever ranks among Nikko's top 10 portfolio holdings, and several other UK companies also feature, including narrow-moat food service provider Compass and insurer Prudential.



is senior editor for Morningstar Australia

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