The data shown is not constant over time and the allocation may change in the future. Totals may not sum to 100.0% due to rounding. All data source Allianz Global Investors unless otherwise stated.
Data as of 31.12.2019
Data as of 31.12.2019. Excludes Cash
|Europe ex UK||23.6|
|Pacific ex Japan||5.4|
Data as of 31.12.2019. Excludes Cash
Global equities closed 2019 on a strong footing, with many markets reaching fresh highs. Sentiment was lifted by two major developments: The US and China began to communicate they were close to reaching a “phase one” trade agreement, while the Conservative Party’s decisive victory in the UK general election provided some clarity on Brexit.
As a fundamental underpinning to the stronger markets, economic data improved, buoying hopes that the global economic slowdown may have bottomed out. Most central banks kept interest rates on hold, with a handful of rate cuts in the developing world. However, Sweden’s Riksbank bucked the broader trend, becoming the first central bank to move away from negative rates amid concerns over their wider impact.
The British pound surged following the Conservative Party’s decisive victory in the UK general election, breaching USD 1.32 for the first time since the spring.
The Trust’s NAV with debt at fair value returned 2.57% against a benchmark return of 1.61%, after fees. Strong stock selection continued to be the portfolio’s main driver of returns, particularly in the Industrials, Financials and Consumer Services sectors.
Taiwan Semiconductor Manufacturing Company (TSMC) has made the largest positive contribution to returns. A US/China rapprochement has eased pressure on the supplier of semiconductor wafers, which supplies Apple and Huawei, each country’s respective smartphone giant. Looking ahead, the launch of TSMC’s new 5 nanometre nodes will be central to the rollout of 5G handsets and infrastructure globally, which should fuel structural rather than cyclical growth. The yield of over 3% also remains attractive.
Sirius Real Estate also boosted performance. The UK real estate company has benefited from a decisive Conservative majority, which is seen as bringing some degree of clarity to the UK’s political and economic future. However, with a high grade portfolio of properties in London and Manchester that is efficiently managed, Sirius has already substantially boosted its funds from operations. Alongside low interest rates and the high demand for yield, Sirius’ investment case remains firmly intact.
International Flavors and Fragrances (IFF) was a weak spot in the month, as it made a surprise announcement of plans to merge with Dupont’s Nutrition and Biosciences unit. The deal was met with scepticism by the market, where sentiment had only recently recovered from the recent Frutarom acquisition. While we share some concern about the timing of the deal, we do view it as a unique opportunity which is ultimately strategically sensible and fairly valued. The merged entity has the potential to create an industry leader with substantial synergy potential.
Charles Schwab also detracted from performance, reversing some of last month’s contribution. Shares in the US financial services provider had rallied sharply in November following news it would be acquiring rival TD Ameritrade. Recent weakness is likely to reflect profit-taking. However, the month also saw a meaningful slowdown in interest-earning deposits as customers bought into equity funds. While further economic optimism may impact net interest margins in the short-term, Schwab’s acquisition of Ameritrade consolidates the firm’s position as a leading wealth manager.
Over the period we sold our position in EOG Resources, Nielsen Holdings and TP ICAP.
Monetary policy has been the strongest driver of equity market returns in 2019. This force is now on hold for the foreseeable future. This will provide a support for current asset levels, without providing stimulus for further strong appreciation. Growth, which decelerated throughout the previous year, also appears to be stabilising.
With the phase one US/China trade deal announced, the major drag on growth from trade disputes, tariffs and corporate spending should at least not increase. Corporate profits should also return to modest growth in 2020 after a year of negative momentum. In Europe, businesses are hopeful that Prime Minister Johnson’s substantial majority will at last deliver some clarity on Brexit. In addition, the prospect of substantial fiscal stimulus has been widely discussed. As investors, we will need to see evidence of delivery.
Valuations have risen over the course of 2019 and remain higher than average in absolute terms. The MSCI World index’s valuation, as measured by its aggregate long-term price-to-earnings ratio, is now at a level not seen since 2007. However, relative to other asset classes, notably fixed interest and cash, equity markets are attractively valued, with higher yields than most bond markets.
We maintain a strategic bias towards Quality and structural Growth. We believe this will continue to benefit the portfolio as sources of potential volatility remain in the uncertainty over growth, trade frictions between the US and its major trading partners, the US election and increased Middle East conflict. However, we recognise that valuations of Growth and Quality are higher than average. Therefore, within the range of our Quality Growth bias, we have been avoiding the most expensive defensives, favouring Health Care over Consumer staples for example, and maintaining some cyclicality via our Industrials exposure.
Relative to other asset classes, equity markets are attractively valued
This is no recommendation or solicitation to buy or sell any particular security.
|NAV (debt at fair value)||4.8||6.4||25.6||37.9||78.0|
Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return to 31.12.2019.1
|NAV (debt at fair value)||25.6||-7.1||18.1||23.6||4.5|
Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return as at 31.12.2019.1
1Past performance is not a reliable indicator of future returns. You should not make any assumptions on the future on the basis of performance information. The value of an investment and the income from it can fall as well as rise as a result of market fluctuations and you may not get back the amount originally invested.This investment trust charges 70% of its annual management fee to the capital account and 30% to revenue. This could lead to a higher level of income but capital growth will be constrained as a result.
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