I have said it before, and I will say it again – when global equity markets get rocky, this is the fund you want to own. With markets on a rollercoaster, the MSCI World Index lost 1.6% in the third quarter. According to Morningstar, the average global equity fund was down 3.4%. Yet this high conviction, quality focused offering managed to gain 2.6%. Part of this outperformance can be attributed to its cash position, which at the end of September sat just shy of 30%. The rest of it is the result of stock selection, with consumer staples and financial names outperforming. The portfolio is concentrated, holding 30 names at the end of August. The sector mix and country allocation is the result of the manager’s disciplined stock selection process.
In a recent commentary, the managers noted the recent selloff has improved the outlook for a number of their holdings. However, they voiced concerns the market valuation remains high, particularly in light of the slow and potentially slowing growth. They continue to focus on well-managed, high quality companies.
I continue to like this fund. It offers one of the most attractive risk reward profiles of any equity mutual fund. It offers decent upside when markets are rising, but to me the selling feature is how it behaves in down markets. The downside protection of this fund is excellent, participating in only 60% of the markets drops over the past five years. Given there has been no material changes to the way the managers execute their strategy, I don’t envision a substantial change to this on a go forward basis. I expect it will continue to do what it does, offering strong risk adjusted returns. It is likely to lag in a rising market, but that’s a tradeoff I’m comfortable with for the downside protection.