NAV on 2019/03/22
|NAV on 2019/03/21
|52 week high on 2018/09/05
|52 week low on 2018/03/27
|Total Expense Ratio on 2018/12/31
|Total Expense Ratio (performance fee) on 2018/12/31
Sanlam Collective Investments
MSCI World High Dividend Yield NR USD Index (M1WDHDVD Index)
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Douw joined Old Mutual Investments in 1991 as an equity analyst, where he spent the next fifteen years. During this time his responsibilities included that of head of industrial sector research and the management of a variety of equity portfolios. During his last five years with Old Mutual, Douw was responsible for the management of all of its value style mandates, including the Old Mutual Value Fund and the Old Mutual High Yield Opportunity Fund. Douw joined Orthogonal Investments as one of its founding shareholders upon its inception in 2007.
Denker SCI Global Dividend Feeder Fund - Sep 18
Quarter to September 2018
The headline 5% return produced by the MSCI World Index, which represents global developed markets, hides a mixed bag of returns from its constituent regions during the quarter. As has been the case for most of the past year almost all of this return was attributable to its largest constituent, the US, where the equity market rose just more than 7% - driven by continued robust economic and corporate earnings growth. European markets produced a wide spread of returns, ranging from Switzerland which advanced +7% to Germany which declined by 0.6%. Growing concern about the prospect of a disorderly exit from the European Union weighed on the UK market, contributing to a decline of 2% during the period. The fund, which due to its search for high dividend yields has a sizeable exposure to Europe and the UK, lagged the broader market.
A further increase in US interest rates by the Federal Reserve was accompanied by a pronounced shift in sentiment regarding the expected trajectory of rates next year. The implied probability of a further 2-3 rate hikes before the end of next year has increased markedly, while the implied probability of 0-1 hikes has decreased proportionally. This shift appears to be founded on concern about the potential for higher than anticipated inflation, fuelled by the combination of a vigorously growing economy and an exceptionally low unemployment rate which has already prompted a rise in hourly wages. The magnitude of the growth in reported corporate earnings resulting from this extremely favourable environment has allowed the equity market to post a positive return, despite a stealthy decline in its valuation.
The largest positive contributions to the fund’s performance during the period were provided by Scor (+25%), Cisco Systems (+14%), Lockheed Martin (+18%) and HP Inc. (+14%). The largest detractors from performance were IG Group Holdings (-24%), TUI (-12%) and British American Tobacco (-8%).
The price of Scor, a mid-sized French reinsurance company, rose sharply in response to an unsolicited offer from Covea. Covea is already its largest shareholder with roughly a 8% holding. Management have rebuffed the offer stating that it significantly undervalues the business, but this is unlikely to be the end of the story. A revised offer is widely expected.
TUI is a European leisure company, offering cruise and resort holiday packages. It is unique in the sense that it owns and operates most of the infrastructure required to offer these packages. The bulk of its business is sourced from the German and UK markets. Its share price declined sharply in sympathy with its European industry peers who reported weaker than expected results as a result of the unusually hot summer which prompted many holidaymakers to stay at home rather than to travel in search of sun. Management sought to dispel these fears by issuing a trading statement a few days before the end of the quarter which confirmed their previous guidance of roughly 10% growth in EBITDA. A subsequent meeting with the CEO reassured us that the company’s prospects remain positive and underappreciated.
After recovering all of the devastating decline suffered in December 2016 as a result of the surprise announcement by the Financial Conduct Authority (FCA) of much stricter regulation of the online trading industry, the price of IG Group Holdings suffered another significant setback during the period. This time it resulted from the confluence of three events. First was the actual introduction of the new FCA regulations that weighed on the prices of all of the industry participants. These regulations are not expected to have a major impact on IG Group, because they relate to only a small proportion of its client accounts. Next was a disappointing trading update from the company which warned that the non-reoccurrence of the frenzied Bitcoin trading seen during the fourth quarter of last year is expected to result in lower growth during the rest of this year. To top all of this off the company also announced the unexpected departure of the CEO who has been a part of the senior management team of the business for the past 24 years. His replacement is still to be named. In assessing the impact of all of these developments on the prospects and valuation of the company we considered various scenarios and concluded that the current valuation appears to be discounting an extremely unlikely and dire set of assumptions. Now is not the time to panic.
The fund declared a distribution of 29.02 US cents per unit (Class A) for the six-month period to the end of September 2018. This reflects a 9% increase compared to the corresponding period of the previous year. Combined with the 17.56 US cents per unit distribution paid during March 2018, it denotes a dividend yield of 3.8% (net of withholding taxes paid by the fund) on capital invested 12 months ago. This is marginally lower than the 3.9% gross yield of the benchmark MSCI World High Dividend Yield Index.
The portfolio will invest in assets in liquid form and in participatory interests of the SIM Global Equity Income Fund under the Sanlam Universal Funds PLC approved by the Irish Regulator in September 2004. The portfolio will have foreign exposure of at least 85% at all times.