Northstar SCI Global Flexible Fund- Sep 19
The Northstar Global Flexible Fund delivered a return of +0.26% for the 3 months to end-September 2019, while the average fund return in the Morningstar EEA USD Flexible Fund category was +0.23%.
For the 12 months to end-September 2019 the Fund returned +5.48%, ahead of both the MSCI World Index of global equities and the Morningstar peer group return of 1.83% and +1.42% respectively. An annualised return of 7.29% since inception places the Fund amongst the top 5% of multi asset global flexible funds ranked by Morningstar.
Treasury yields picked-up where they left off last quarter, continuing a relentless march lower, from 3.2% in November 2018 to 1.45% in early-September 2019, with real yields in negative territory for the first time since July 2016. The rally was, however, brought to an abrupt halt over the course of the first half of September as expectations of a de-escalation in US-China trade hostilities as well as a lukewarm reception to further ECB stimulus, led to a 44bps hike in the US 10 Year Treasury yield.
Sharply higher rates in turn sparked equity market rotation out of so-called Growth into Value stocks. The MSCI All Country World Banks Index – a proxy for beaten down stocks – enjoyed a 9.9% rally over a fortnight in late-August to early-September, yet still underperformed the broader market by over 160bps in the quarter. Global banking stocks, to which the Fund has no exposure, have lagged the market by over 600bps year-to-date.
Equity selection remains a key driver of returns. The Fund’s underlying equities delivered a return of 0.81% for the quarter, ahead of the MSCI World Index return of 0.53%. Blackstone Group (+11.0%), Alphabet Inc (+12.8%) and Medtronic plc (+12.7%) were the best performing holdings over the 3 months, with 61bps, 52bps and 41bps of outperformance attributable to each respectively, taking account of the Fund’s weighting relative to the equity benchmark.
Walt Disney (-6.1%) and LVMH Louis Vuitton Moet Hennesy (-6.7%), two of last quarter’s biggest contributors, detracted this quarter, while the lack of any exposure to Apple (+13.6%) undermined relative performance. Disney, LVMH and Apple respectively contributed -40bps, -37bps and -26bps to the quarterly return of the equity component of the fund.
Having increased the Fund’s allocation to equities in early January, we actively reduced exposure to the asset class during the quarter, taking account of the rally year-to-date and the lower intrinsic value discount of the Fund’s equity holdings. Quarter-on-quarter, the equity exposure reduced from 63% to 58%.
We continued the strategy employed in the 2nd quarter of increasing US dollar bond exposure, albeit relatively short duration. However, following the rally in bonds through late-August we once again reduced exposure to Bonds from a high of 21% at the end of July to 16.2% by quarter end, choosing to hold the Fund’s significant residual cash balance in high quality, short-term money market instruments.
The portfolio's investment universe includes equity securities, government bonds, corporate bonds and inflation linked bonds, debentures, property securities, property related securities, interest bearing securities, preference shares, money market instruments and assets in liquid form. The portfolio may invest in participatory interests and other forms of participation in portfolios of collective investment schemes or other similar schemes operated in territories with a regulatory environment which is to the satisfaction of the manager and trustee of a sufficient standard to provide investor protection at least equivalent to that in South Africa and which is consistent with the portfolio's primary objective.