Northstar SCI Global Flexible Fund -Mar 19
The Northstar Global Flexible Fund delivered a return of +10.92% for the 3 months to end- March 2019. The Fund’s composite benchmark, comprised of 60% MSCI World Index and 40% Bloomberg Barclays Global Aggregate Bond Index returned +8.79%, while the average fund return in the Morningstar EEA USD Flexible category was +6.78%.
For the 12 months to end-March 2019 the Fund returned +7.53%, which compares more favorably to the composite and peer group returns of +2.49% and -0.13% respectively, ensuring the Fund retained its top quintile ranking versus peers.
Risk appetite returned during the quarter following a torrid end to 2018. Global equities rallied strongly, with the MSCI World Index (+12.48%) led by cyclical sectors, notably Information Technology (+19.2%), Industrials (+13.8%) and Energy (+13.5%). Defensive sectors such as Health Care (+7.5%) and Utilities (+9.3%), nevertheless delivered respectable returns.
Financials (+7.6%) continue to lag, having underperformed the broader market by over 1400bps over the passed 12 months, weighed down by the poor performance of the MSCI Global Banks sub-Index, which returned -14.98% over the past 12 months.
Equity selection remains a key driver of returns. The Fund’s underlying equities delivered a return of 16.7% for the quarter, more than 400 bps ahead of the MSCI World Index. Philip Morris (+34.1%), Alibaba (+33.1%) and British American Tobacco (+32.7%) were the best performing holdings over the 3 months, with Danaher (+85bps), Moody’s (+79bps) and LVMH (+62bps) offering the best attribution, which takes into account the Fund’s weighting relative to the benchmark.
WPP (-3.8%), Berkshire Hathaway (-1.6%) and Medtronic (+0.7%) were the worst performing holdings, with the largest negative attribution coming from Walt Disney (-56bps), Berkshire Hathaway (-50bps) and Medtronic (-46bps).
We increased the Fund’s allocation to equities early in the quarter, owing to a larger intrinsic value discount following the global equity sell-off in 4Q18. We also exited the Fund’s bond holdings entirely in January, reflecting our view that, following a rally in 10 Year US Treasuries from 3.2% to 2.5% in the final two months of 2018, long bond yields had deviated meaningfully from our assessment of fair value. We have subsequently reestablished some short duration bond exposure.
Following poor organic revenue growth reported by Publicis, we made the decision to sell the Fund’s remaining holding in WPP. The Publicis result confirmed our concerns that the headwinds facing advertising industry incumbents have not relented and that the shift to digital advertising is likely to continue to undermine the traditional agency model and that the rise of digital platforms, notably Facebook and Google, represents a permanent impairment to the source of their competitive advantage, namely the negotiating power they held in a traditional fragmented media landscape.