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 29.02.2020
Data as of 29.02.2020. Excludes Cash
|Europe ex UK||24.4|
|Pacific ex Japan||5.5|
Data as of 29.02.2020. Excludes Cash
The modest correction that started in January accelerated during February, becoming a more pronounced sell off as the economic disruption from attempts to contain the coronavirus began to impact global supply chains, travel and demand patterns. The MSCI All Country World Index fell 8.2%, the worst monthly return for global equities since May 2012. Developed Markets underperformed Emerging Markets as the focus turned to the impact of the virus on Japan, Europe and the US. By sector, Energy performed worst in response to the large fall in the oil price. Telecoms, and (rather counterintuitively) Semiconductors provided the most defensive areas of the market.
Economic growth indicators, having had a short period of stabilisation, returned to the path of downward revisions experienced last year. Chinese economic activity has been severely negatively impacted by the extensive action taken by the Chinese government to contain the virus. Growth expectations for the region have been downgraded, as have the profits of 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 increased, driving government bond yields to new lows.
Although the Trust’s NAV fell by 5.0% in February, it was ahead of the benchmark return of -6.4% as the portfolio held up relatively well in the selloff, mostly due to positive stock selection. Following a period of fund outperformance in rising markets, this was a brutal test of portfolio resilience with a solid result. While the portfolio is active and concentrated, it is also constructed to withstand market volatility by avoidance of directional bias, diversification of factor risk and disciplined management of momentum. The good stock selection was particularly pronounced in the health care (notably Abbvie, Roche, Cooper), technology (TSMC, Microsoft) and Utilities (Iberdrola) sectors. The only sector with negative stock selection was financials, where Munich Re and Ashmore were weaker than average following strong performance last year.
Abbvie (ABBV) was the best overall contributor to performance in the month. The combination of attractive valuation and improving sentiment towards the recent Allergan acquisition benefited the stock.
Taiwan Semiconductor Manufacturing Company (TSMC) was again one of the strongest contributors as the positive impact of Q4 results supported the stock. 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. We have trimmed our position in the stock.
Iberdrola(IBE) was a positive contributor as the 2019 result surpassed expectations. Iberdrola has installed 5.5GW of capacity in 2019 with 9GW under construction and will by far exceed its 2022 capacity targets.
Munich Re (MUV2) was a negative contributor during February as profits were taken in the stock following a very strong performance since mid-2019. The company released full year figures at the end of February, delivering a 7.5% rise in operating profit translating into a 6% rise in dividend and confirming its 2020 profit outlook.
Ashmore (ASHM) was also was a relative underperformer during the month as the Emerging Market exposure was derated.
On the last Friday of the month, as the market correction reached panic mode, we added to overall gearing and topped up some of our favoured holdings at the more attractive valuations on offer.
We had already been expecting global monetary policy to remain loose this year but the sharp economic shock provided by the coronavirus has raised the probability of further accommodation. At the same time, the outlook for economic growth and corporate earnings has returned to the path of downgrades seen last year.
Our view is that we are experiencing a temporary sharp supply and demand pause for the global economy rather than a complete derailment, but conviction around the timing of a return to more normal trading patterns is low. There are early signs in China of a resumption of production but elsewhere the impact of containment is currently at an early stage. Prolonged absence of cashflow when companies are highly indebted is a source of potential risk, from which our bias towards low leverage in stock selection should provide protection. While we assess the emerging macro and micro datapoints, we will continue to take advantage of any buying opportunities in good quality stocks.
While the overall economic background lacks certainty short term, 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 the search for yield in the increasingly low interest rate environment.
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.
Generating good performance will require active investment and avoidance of risk
This is no recommendation or solicitation to buy or sell any particular security.
|NAV (debt at fair value)||-4.3||-0.6||9.5||22.9||55.4|
Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return to 29.02.2020.1
|NAV (debt at fair value)||9.5||-0.6||12.9||31.8||-4.1|
Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return as at 29.02.2020.1
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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