Northstar SCI Global Flexible Fund -Sep 18
The Northstar Global Flexible Fund delivered a return of +5.4% for the 3 months to end- September 2018. The Fund’s composite benchmark, comprised of 60% MSCI World Index and 40% Bloomberg Barclays Global Aggregate Bond Index returned +2.9%, while the median fund in the Morningstar EEA USD Flexible category returned +1.1%.
Since inception on 1... June 2017, the Fund’s annualised return of +8.6%, places it in the top decile of Global Flexible funds, inline with the ranking achieved over the past 12 months, wherein the fund returned 9.4%.
Emerging markets came under further pressure during the quarter, with currency weakness, notably of the South African Rand (-2.9%) and Brazilian Real (-1.3%) versus the US dollar, once again contributing to their poor performance. The MSCI Emerging Markets Index declined -1.0%, while developed markets, notably the US (S&P500 + 7.7%) and Japan (Nikkei +9.4%) continued their strong run.
Interest rate sensitive asset classes struggled with the Bloomberg Barclays Global Aggregate Bond Index down 0.9% in the quarter and the S&P Global REIT Index (0.2%) delivering only a marginally positive return.
The Fund’s relative lack of exposure to sectors deemed to exhibit poor fundamentals, such as Utilities (+0.2%), Energy (+0.05%), Materials (-1.2%) and Real Estate (-1.6%) versus sectors we consider to have superior fundamentals, such as Health Care (+11.1%) and Technology (7.9%), boosted performance.
Stock selection was a key driver of returns over the past three months, with the Fund’s socalled 'hit rate' - the number of holdings outperforming the equity benchmark - reaching 73%. Blackstone (+20.3%), Thermo Fisher Scientific (+17.9%) and Delta Air Lines (+17.5%) delivered the best absolute returns, with Naspers (-15%), Alibaba (-11.2%) and British American Tobacco (-7.6%) faring worst.
The Fund’s overall equity exposure was maintained at approximately 67% during the quarter, ahead of the benchmark weight of 60% but down from the peak of 73% in October 2017. Equity allocation remains a function of (and continues to be supported by) the bottom up intrinsic value discount of the Northstar Global Equity Buy List.
We exited Apple, one of the Fund’s core long term holdings, during the past quarter.
As shares in Apple had been trading above our Base Case intrinsic value estimate, we consistently reduced exposure to the company over the course of the past year. Having recently moved through our Bull Case valuation, which gave credence to higher handset shipments and average selling prices, we felt it prudent to sell the remaining holding.
The Fund retains a meaningful underweight position in global bonds, with short duration US Treasuries and cash making up the bulk of the non-equity exposure, both offering diversification and a useful buffer against equity market volatility