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 31.01.2020
Data as of 31.01.2020. Excludes Cash
|Europe ex UK||24.1|
|Pacific ex Japan||5.3|
Data as of 31.01.2020. Excludes Cash
After the strong rally in global equity markets since mid-2019, January saw a modest correction. Early tensions between the US and Iran, and the emergence in China of a new strain of coronavirus caused a deterioration in sentiment and profit taking. The Federal Reserve (Fed) kept rates on hold and indicated it has no plans to change them this year.
Economic growth indicators remain mixed after the downward revisions experienced last year. In Europe, flash indications for January indicated that growth in Germany and France was positive but that, elsewhere in the euro zone, economic activity had slowed to a six-and-a-half year low.
Chinese economic activity, which had been showing signs of stabilisation, has been negatively impacted by the emergence of the coronavirus and the extensive action taken by the Chinese government to contain it. Growth expectations for the region have been downgraded, as have the profits of those companies producing, operating or selling in affected areas. Given the importance of China as circa 16% of world gross domestic product (GDP), this has also had an impact on global GDP forecasts.
As markets sold off, demand for safe-haven assets rose again, suppressing government bond yields. As a result, the high dividends across Utilities stocks made it the month’s best-performing sector. Technology companies also advanced strongly, helped by positive fourth-quarter earnings from certain index heavyweights. Energy and Materials stocks declined the most, reflecting weaker expectations for global growth.
The Trust’s NAV fell by 1.8% in January, lagging a fall in the benchmark of 1.2%, though the portfolio performed in line with its benchmark. Stock selection was positive in the Basic Materials and Financials sectors, offset by weaker picks in Industrials and Technology. While sector allocation is a by-product of our conviction in individual stocks, the portfolio’s underweight allocation to the Oil and Gas sector boosted performance.
Microsoft made the largest positive contribution to returns, delivering strong results across every segment of its business. Most impressively, Microsoft’s Azure cloud computing division grew revenues 64% year on year, an acceleration from the previous quarter. With only 3% of workloads currently on cloud services, Microsoft’s established relationships with enterprise customers make it well-positioned to continue capturing this growing market.
The Cooper Companies also boosted returns. Shares in the maker of contact lenses and healthcare products had been overly discounted after the potential for a hard Brexit led to overstocking in the UK. As a result, we increased our position at the start of the year. The company has since provided investors with positive updates on its Misight myopia lenses. Given the increasing incidence of myopia in children, a successful global rollout could provide substantial long-term growth for the company.
UnitedHealth Group has been the portfolio’s main detractor. Shares in the provider of managed healthcare have weakened as positive polling for the Democratic Presidential Candidate Bernie Sanders revives investor fears around universal healthcare. Combined with cases of coronavirus in the US, investors have begun fearing for United’s longer-term profitability. However, we continue to view universal healthcare in the US as an unlikely eventuality and, given its value-based approach, United as one of the most resilient players to funding changes within the industry.
Taiwan Semiconductor Manufacturing Company (TSMC) was one of the strongest contributors to performance last year and in its Q4 results, the maker of integrated circuits beat high revenue and margin expectations and also guided positively. Longer term, the company expects 5G to be a multi-year catalyst across all its clients. There is a strong demand for TSMC’s products and it has a relatively low factory count in China.
Monetary policy is expected to remain loose in the US and elsewhere, providing a support but no extra boost to asset prices. At the same time, the outlook for economic growth and corporate earnings is mixed. Signs of stabilisation in global data towards the end of the year, as well as the Phase One US-China trade deal, had improved business confidence.
However, for now any improvement looks likely to be delayed by the sharp deterioration in Chinese economic activity as a result of the coronavirus. Our view is that the disease will present a temporary delay in recovery for the global economy rather than derailing it completely. In the meantime, we will take advantage of any buying opportunities in good quality stocks with meaningful exposure to China and enduring growth potential.
While the overall economic background remains uncertain, there are long-term structural trends which offer more visibility for investors: The shift towards digitalisation is one we have discussed previously, and have exposure to in the portfolio, in names like Microsoft or Atlas Copco. A second structural shift is related to developing of a low carbon economy which is reflected through our ownership of renewable energy companies Enel and Iberdrola. Thirdly, and of particular importance to the Brunner portfolio, is how the low interest rate environment intensifies the search for reliable yield and dividend growth potential.
Overall therefore, the outlook for equity returns in 2020 remains modest. The liquidity environment remains supportive while economic activity is mixed. Global equity valuations are at the high end of historic ranges, but remain attractive relative to other assets with yields above most bond markets. Generating good performance will require active investment and avoidance of risk.
of particular importance to the Brunner portfolio, is how the low interest rate environment intensifies the search for reliable yield
This is no recommendation or solicitation to buy or sell any particular security.
|NAV (debt at fair value)||5.0||1.4||19.2||35.1||69.9|
Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return to 31.01.2020.1
|NAV (debt at fair value)||19.2||-4.5||18.6||28.9||-2.4|
Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return as at 31.01.2020.1
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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