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 equi..es 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 deescalation in USChina 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 socalled 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 will apart from assets in liquid form invest in participatory interests of the Northstar Global Flexible Fund established under the Sanlam Global Funds PLC. The Northstar Global Flexible Fund invests in global equities which will primarily be common stocks and other securities with equity characteristics, comprising preference shares, as well as depository receipts, global bonds (fixed and/or floating; government and/or corporate; rated and unrated), real estate investment trusts (REITS) and cash and cash equivalents. The fund will be managed with a bias towards global equities due to the superior longterm returns from this asset class. If prospective returns from equities are unattractive, exposure to other asset classes, such as real estate, bonds and cash will increase. The Fund is not focused on any specific geographical area, industry or sector and may invest in equities of companies across the full spectrum of market capitalizations. The portfolio may also invest in financial instruments for the exclusive purpose of hedging against exchange rate risk.