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 31.10.2020
Data as of 31.10.2020. Excludes Cash
|Europe ex UK||26.4|
|Pacific ex Japan||5.2|
Data as of 31.10.2020. Excludes Cash
Global equities initially strengthened, boosted by rising optimism that the US Congress would agree on a new support package. However, sentiment deteriorated sharply towards the month-end as a sharp rise in Covid-19 cases in Europe led to the re-imposition of lockdown measures in several European countries. New infections also surged in the US, with the upcoming presidential election also causing uncertainty. Asian and emerging equities outpaced developed market stocks, helped by solid gains from China. The British pound strengthened, boosted by speculation that the UK and EU were nearing agreement on their future trading arrangement.
The Trust slightly underperformed its benchmark over the month with a NAV total return of -3.3% against the -3.2% of the benchmark. Stock selection in the Financials and Utilities sectors made the largest negative contribution to returns, partially offset by a stronger performance in Consumer Services and Consumer Goods.
Tyman, the manufacturer of window and door components, made the largest positive contribution following a positive unscheduled trading update. The company stated Q3 trading was better than expected and H2 revenues are likely to be only slightly behind 2019. Tyman is benefiting from the rapid recovery in housing and construction in the US and UK markets. Despite the upward move, the shares remain attractively valued.
TSMC also boosted returns. The Taiwanese semiconductor manufacturer released Q3 results which beat revenue and margin expectations thanks to sustained high demand. Management also gave strong guidance for Q4 as sales of the 5G iPhone are expected to drive full year revenue growth of over 30% year on year. Longer-term, TSMC is scheduled to start production of its 3nm chips in 2021, further cementing its technological leadership versus peers.
Fresenius, the German healthcare group, saw its shares fall as European lockdowns were re-imposed. However, the company’s Q3 results were solid, with sales above consensus and a robust outlook thanks to resilience in its core dialysis division. Fresenius’s valuation is very attractive considering the stability and predictability of the company’s earnings stream.
Visa also detracted from performance. Weak results from its payments peer MasterCard, combined with rising Covid-19 cases dented the shares. However, solid Visa results at the end of the month outlined key differences between the two and provided a boost for the shares. Whereas MasterCard suffered due to cross border transactions, Visa has captured more spending through debit and online channels.
At the time of writing, the US pharmaceutical giant Pfizer had just announced a Covid-19 vaccination with 90% effectiveness. This is a very significant development for financial markets and the reaction has been instant. Companies whose business models have been most heavily impacted by Covid-19 have seen sharp share price recoveries. Conversely, stocks which have benefitted from the pandemic are weakening.
This stark polarisation within the equity market and the potential for such a divergence in performance has been a key focus in the Trust’s portfolio positioning in recent months. Our goal has been to ensure that portfolio holdings benefitting from the pandemic have sustainable long-term investment cases which can underpin their valuations once the virus eases. Similarly, we have initiated or increased positions in companies that have been impacted by the pandemic, but where we believe this to be temporary and where we see a compelling long-term investment case.
Recent earnings reports have gone some way to validating this strategy. In the “stay at home” camp, portfolio holdings such as Microsoft, TSMC and Intuit have all reported strong revenue and earnings growth. Undoubtedly part of this is due to Covid-19 accelerating the uptake of their products and services. Certainly there could be a temporary hiatus in activity if the economy and society return to normal quickly, but ultimately these trends are structural in nature with a long runway of future demand still to come.
On the other hand, outside of the most exposed areas such as airlines and hospitality (where the trust has little exposure), well managed companies that have invested behind their businesses have found ways to adapt to the pandemic. Strong recent trading updates from Redrow, LVMH and Estée Lauder have demonstrated this point, with the shares responding positively.
Away from Covid-19, the all but certain election of Joe Biden as US President has provided a separate boost for equity markets. A Biden administration is expected to deliver more geopolitical stability than that of its predecessor, particularly with respect to global trade. At the same time, a gridlocked congress is unlikely to pass legislation radical enough to erode earnings in profitable sectors like Health Care and Technology.
The freshness of the Pfizer vaccine news also gives scope for disappointment. Testing still needs to be completed and it will take time to roll out in meaningful numbers. However, it does offer a much needed psychological boost both for financial markets and society as a whole. Whichever way events play out, we are likely to see continued volatility within the stock market. In this context, the Trust’s actively managed and balanced portfolio of high-quality companies should continue to deliver sustainable long-term growth in capital and income.
a gridlocked congress is unlikely to pass legislation radical enough to erode earnings in profitable sectors like Health Care and Technology
This is no recommendation or solicitation to buy or sell any particular security.
|NAV (debt at fair value)||-0.4||5.8||-4.2||0.8||40.5|
Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return to 31.10.2020.1
|NAV (debt at fair value)||-4.2||7.6||-2.2||16.5||19.6|
Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return as at 31.10.2020.1
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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