Legg Mason Martin Currie Global LT Uncon A aims to provide capital appreciation through investment in global equities (ex Australia). The Fund is expected to generate returns in excess of the Morgan Stanley Capital International (‘MSCI’) All Country World Index (‘ACWI’) (ex Australia) expressed in Australian dollars over rolling five-year periods with lower volatility.
The Fund was down 8.10% over the month of September, in comparison the benchmark as measured by (MSCI All Country World Index (Ex Australia) expressed in AUD was down 3.82% in September. At the Fund level, positives included Wuxi Biologics, the world’s number two in CRDMO (an outsourced contract research, development, and manufacturing company for biologic drugs for pharma and biotech) continued its recovery on the back of improved biotech funding and the end of destocking. Atlas Copco held up better following two strong sets of quarterly results and in the absence of specific news flow in September.
On the other side, ASML was down last month, on the back of news flow that the US government was planning additional curbs on semiconductor exports to China as early as October. We do not expect this will impact ASML’s ability to continue to ship their low-end immersion system to China as is currently allowed under the rules. In the unlikely event that it does, China should purchase more of the less productive tools and any lost production may incrementally be added outside of China. Moncler fell alongside luxury goods sector last month, in the absence of stock specific news flow. Broadly speaking, the sector was impacted by growth normalisation in the US and Europe (from unusually high levels during Covid), which partly offset a recovery in Asia/China. Our conviction in Moncler and the luxury goods sector remains strong. Nvidia was impacted by the broader sell-off in the tech sector and could be partly affected by the statement from Microsoft chief technology officer that the supply of Nvidia’s graphics processing units (GPUs) was “still tight” but improving. However, Microsoft was early in the queue to benefit from any ramp-up in Nvidia’s supply and this doesn’t change the broader picture that there remains a significant shortage of demand for Nvidia’s GPUs overall.
While much of the positive investor sentiment during the first half of 2023 came from expectations that the US federal funds rate might be close to peaking, we believe inflation could remain higher and longer lasting generally. It will be critical to continue to observe wage inflation trends, as these have the potential to turn inflation into a more structural rather than frictional phenomena.
We still believe central banks (both the Fed and the ECB notably) are unlikely to pivot until sometime in H2 2024. Central banks have now shifted to being more data-dependent, which will bring more volatility with every data point. We note that expectations of rate cuts in 2023 have now evaporated, and also note that expectations of a rapid shift towards cuts in H1 2024 have now been pushed into H2, closer to our initial and current view. In any case, whether we see a pivot early in 2024, or later on that year, we are closer to the end of the rate hike cycle, which we forecast to happen by the end of this year, which should itself be supportive for Quality and Growth stocks in our view.
In terms of the macroeconomic cycle, China’s reopening supported our central scenario of a sharp slowdown rather than recession at the global and US level during the first part of the year. Despite the recent loss of momentum on Chinese leading indicators, we expect the Chinese economy to grow at +5-6% this year, albeit more likely at the bottom end of that range, which should in itself be fairly supportive. At the same time, the US economy has been showing impressive resilience, confounding the sceptics and with growth of 2% expected this year. This has led to a more supportive backdrop for global growth. Europe, being more cyclically exposed to China, has experienced a weaker momentum generally, with the region being closer to the stagflation scenario that we had predicted as most likely.
What is Legg Mason Martin Currie Glbl LT Uncon A Legg Mason Martin Currie Glbl LT Uncon A is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - Large Fundamental Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Legg Mason Martin Currie Glbl LT Uncon A has Assets Under Management of 10.71 M with a management fee of 0.95%, a performance fee of 0.00% and a buy/sell spread fee of 0.25%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Legg Mason Martin Currie Glbl LT Uncon A has returned 2.92% in the last month. The previous three years have returned 1.71% annualised and 13.68% each year since inception, which is when the Legg Mason Martin Currie Glbl LT Uncon A first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Legg Mason Martin Currie Glbl LT Uncon A first started, the Sharpe ratio is 0.61 with an annualised volatility of 13.68%. The maximum drawdown of the investment product in the last 12 months is -10.33% and -35.3% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Legg Mason Martin Currie Glbl LT Uncon A has a 12-month excess return when compared to the Foreign Equity - Large Fundamental Index of 2.79% and -0.79% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Legg Mason Martin Currie Glbl LT Uncon A has produced Alpha over the Foreign Equity - Large Fundamental Index of -0.55% in the last 12 months and -0.12% since inception.
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What level of diversification will Legg Mason Martin Currie Glbl LT Uncon A provide?
Legg Mason Martin Currie Glbl LT Uncon A has a correlation coefficient of 0.88 and a beta of 1.55 when compared to the Foreign Equity - Large Fundamental Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
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Performance Commentary - June 30, 2023 The Fund was up 2.35% over the month of June, in comparison the benchmark as measured by (MSCI All Country World Index (Ex Australia) expressed in AUD returned 2.88% in June. At the Fund level, positives included L’Oreal which performed well last month in the absence of specific news flows, with investors continuing to expect positive quarterly momentum from the company. Ferrari performed well last month in the absence of specific news flows, following a strong Q1 result announced in May.
Nvidia continued to perform well in June, following the announcement of its Q1 result on 24 May. This led to a c.40% increase in consensus FY23 revenue forecast, and an almost doubling of consensus earnings estimates. The company is a leader in hardware for generative artificial intelligence. On the other side, the share price of Atlas Copco fell back in June following a strong rally on the back of its quarterly result, in the absence of companyspecific news. Wuxi Biologic’s share price weakness in June was driven by expected below-trend growth in the first half of 2023. This was largely due to scheduled maintenance work, announced at its Capital Markets Day in June. Separately, the company expects softness in early-stage research projects to subside as funding improves in Europe, US and China, with the number of projects recovering to normal levels in 2024 and 2025. Illumina was weak in June amidst broad based caution in life sciences as quasi-peers downgraded expectations and as CEO Francis DeSouza resigned shortly after the long-standing proxy battle came to a conclusion. While Mr DeSouza remains in an advisory role to interim CEO, SVP & General Counsel Charles Dadswell, a search assessing internal & external candidates has commenced. On this basis we see an increased probability that Grail is divested (in 1H24), regardless of the legal outcome of appeals which should refocus the market on the attractive core sequencing business, as it enters an exciting new product cycle with the Novaseq X.
From a positioning perspective, during the month, no new positions were taken or exited within the Fund. While much of the positive investor sentiment during the first quarter of 2023 came from expectations that the US federal funds rate might be close to peaking, we believe inflation is likely to be stickier, and therefore could remain higher and longer-lasting generally. As a result, we believe that central banks might not be finished hiking rates, and still believe that they are unlikely to pivot until sometime in 2024. However, inflation forecasts carry a high degree of prediction error, leading to a wide range of possible monetary policy outcomes. This is what will drive an important bull-bear debate across asset classes and will keep intra-market volatility elevated. An early end to the hiking cycle would be supportive for markets, and for the Quality and Growth equity styles. In any case, we are closer to the end of the rate hike cycle, and this should itself be supportive for Quality and Growth stocks. In terms of the macroeconomic cycle, China’s reopening has supported our central scenario of a sharp slowdown rather than recession at the global and US level for now. There has been a recent loss of momentum on the Chinese manufacturing leading indicators. Nevertheless, we expect the leading indicators to remain well oriented in the months to come, notably on the service side, even if the recovery remains uneven.
The recovery of the world’s second-largest economy also has the potential to be supportive for global leading indicators. On the flip side, the tighter credit lending standards we observed in May, following the regional bank failures in March and April, could lead to higher risks for US economic activity. While this is the case, we note that the proportion of responses showing significant tightening in the Senior Loans Officers’ survey was nowhere near the levels we saw during previous recessions. This is an area we will carefully monitor to assess whether there is increased risk of a US recession.
Performance Commentary - March 31, 2023 The Fund was up 8.29% over the month of March and up19.24% over the March quarter, substantially outperforming its benchmark (as measured by the MSCI ACWI ex Australia index) which gained 3.87%.
In march and 8.74% obvert the March quarter. At the Fund level, Nvidia’s share price was strong again in March as it held its GTC conference. The company had already previewed its new Artificial Intelligence (AI) cloud services offering with its Q4 2022 results at the end of February, and the key takeaway from the conference was that AI adoption is spreading across multiple industries. Luxury outerwear firm Moncler’s financial year results highlighted strong performance versus both the market and peers in Q4 2022. US tech giant Microsoft was also strong during March, with technology stocks enjoying a positive month. Swedish conglomerate Assa Abloy underperformed. The company anticipates a legal ruling in April on whether its proposed acquisition of the US- based Hardware & Homeware (HHI) division of Spectrum Brands can proceed. If approved, Assa Abloy could lead the strategically important US DIY channel. UK bootmaker Dr Martens underperformed in March as the market continued to digest January’s profit warning. There was limited news flow in the month but following a meeting with the company we exited the stock (see below). China’s Wuxi Biologics also detracted during the month. The company’s full-year results were in line with expectations, although it needs to expand capacity, which is putting some near-term pressure on margins.
During the month, we exited Dr Martens, as we were unable to rebuild our conviction following January’s weak results and guidance. While much of the positive investor sentiment during Q1 came from expectations that the US Federal Funds rate might be close to peaking, we do not believe this to be the case. We therefore see a major risk of disappointment and volatility for investors expecting an early end to the hiking cycle this year. We still believe central banks are unlikely to pivot until 2024. However, the wide range of possible monetary policy outcomes is what will drive an important bull-bear debate across asset classes. An early end to the hiking cycle would be supportive for markets, and for the Quality and Growth equity style.
On the macroeconomic cycle, with the reopening of China, we expect Chinese leading indicators to continue to show a supportive picture in the months to come. The recovery of the world’s second-largest economy also has the potential to be supportive for global leading indicators, which have been improving slightly, notably for Europe, which is more cyclically exposed to China than the US.
Performance Commentary - December 31, 2022 The Fund was down 4.73% over the month of December, outperforming the benchmark (as measured by the MSCI ACWI ex Australia index) which fell 5.17% in December. At the stock level, China’s Wuxi Biologics’ shares were strong as sentiment on China improved.. At broker meetings, the company’s management reiterated strong guidance revenue and profit growth for 2022 and 2023 respectively. Hong Kong-listed insurer AIA saw its positive momentum continue into December, benefiting primarily from an earlier than expected end to China’s zero-Covid policy. The Chinese border reopening should boost AIA’s new business volume gradually but meaningfully from its pandemic low. Nike had a strong month driven by second quarter results. It delivered an excellent set of numbers which beat consensus estimates (7% at sales, 31% at EPS) and drove upgrades for the full year. Nike’s performance was strong across most geographies, while the potential for a Chinese recovery in 2023 is supportive of further momentum. On the other side, Nvidia underperformed through December, as did other semiconductor names, with shorter-term moves affected by cyclical concerns. Online luxury retailer Farfetch underperformed as the market digested the Capital Markets Day held on 1 December. Its share price weakened as investors struggled with the company’s lowered expectations for marketplace growth combined with reduced profitability. Luxury group Kering underperformed in December despite the positive backdrop of China reopening. Whilst the potential uplift from a stronger Chinese consumer should be supportive in 2023, there were concerns about the company’s fourth quarter results as current trends, particularly for Gucci, remain weak. From a Fund positioning perspective, during the month we exited online luxury retailer Farfetch. Our conviction was reduced following disappointing guidance and profitability delivered at the Capital Market Day as outlined above. Concerns were raised around its dependence on the Off White brand partnership with LVMH. We held a follow-up call with the CEO and founder, but our lower conviction was unchanged.
Performance Commentary - September 30, 2022 Global equities (as represented by the MSCI ACWI ex Australia index (AUD)) fell during the month by 3.54%. The Fund was also negative, falling 6.66% in September. Continued concerns over inflation and the outlook for economic growth led to negative returns for developed market indices in September. Both the European Central Bank and the Federal Reserve raised interest rates during the month.
Inflationary pressures have remained elevated as a result of the price moves within energy and commodities. Whilst inflation prints have indeed been surprising on the upside across geographies over the summer, the next few datapoints will be critical for setting direction for markets, with weaker prints potentially providing some relief. In the meantime, central banks are likely to continue on their path towards rapid normalisation of monetary policies, with likely stronger and stronger rate hikes to be expected this year, despite the weakening economic momentum.
While we continue to believe we are in a sharp slowdown phase of the economic cycle for 2022, with an ongoing deterioration in leading indicators, and a further upward shift in interest rate expectations, the risk of a bleaker scenario for 2023 has increased. Geopolitical risks also remain omnipresent. In Europe, there is an uncertain backdrop of energy rationing for the coming winter, while in Asia there are increased tensions between China and Taiwan. The rapidly slowing economic cycle could risk leading to downgrades given an already low corporate earnings growth outlook.
While the consensus is still for mid-single digit growth in global earnings in 2022, in our view the Ukraine-Russia armed conflict, Covid-related disruptions in China throughout this year, and deteriorating economic trends are likely to bring this figure to closer to zero at the global level and to -5% at the European level. We anticipate a higher occurrence of profit warnings over the next few quarters, a trend that has already picked up since the start of the year, particularly from corporates with margin pressure linked to more pronounced input cost inflation.
We also expect to see downgrades related to companies exiting from their Russian presences. In such an uncertain environment, with higher risk of downgrades to corporate earnings and scarcity of growth in general, there will be an even greater emphasis in the market on companies with consistent growth, higher structural growth profiles, and with enough pricing power to protect their margins from higher inflationary pressures. We remain focused on companies with strong fundamentals: significant pricing power and solid balance sheets, and with exposure to long-term structural growth themes.
Performance Commentary - June 30, 2022 Global equities (as represented by the MSCI ACWI ex Australia index) fell 4.40% in June. While the Fund in comparison was down 5.44% (net of fees) over the month. Markets correcting sharply in June following worse than expected inflationary data from the US. This saw the US Federal Reserve raise interest rates by 0.75% (the largest hike since 1994) and the Bank of England followed in turn with a 0.25% rise. The European Central Bank also announced its intention to raise rates in July.
The tragic conflict in the Ukraine continued to exacerbate inflation through rising energy and commodity prices (notably food), resulting in a negative impact on both business and consumer confidence. Additionally, China’s zero tolerance policy on Covid brought fears of a renewed supply shock globally across many parts of the supply chain, while also leading to a slowdown in economic activity in the world’s second-largest economy. However, this could improve rapidly as China eases restrictions in the months to come. Market leadership favouring value stocks over quality and growth has been a notable headwind for the portfolio year to date. We believe that quality and growth companies are likely to come back into focus for investors. With the deteriorating macroeconomic outlook, a view reinforced by weaker global Purchasing Managers Index (PMI) data, we believe we are entering a period of earnings downgrades over the next few quarters. In such an environment of higher inflation, lower economic growth and lower earnings growth, there will be an even greater emphasis in the market on companies with consistent growth, higher structural growth profiles, and with enough pricing power to protect their margins from higher inflationary pressures.
Performance Commentary - March 31, 2022 Global equities (as represented by the MSCI ACWI ex Australia index) fell during the month, returning -1.44%. The Fund also fell during the month returning -3.76%. The continuing Russian invasion of Ukraine is leading to price increases in energy as well as soft and hard commodities, all of which could contribute further to already elevated inflationary pressures. We believe that there is a strong likelihood of a negative impact on both consumer and business confidence in the months to come.
In March, Nvidia the computer systems designer was among the top performers. On the company’s Analyst Day management provided an update on the firm’s standalone software business that represents over half Nvidia’s long-term opportunity, this is a nascent business with the potential to grow from the low hundreds of millions today into multi-billion opportunity in the future. In addition, the company discussed a US$11 billion design win pipeline across the auto industry. Linde, the industrial gases firm also positive in March, announcing a US$10 billion share repurchase programme and raising the dividend by approximately 10%. The shares reacted positively to this news of an increased return of cash to shareholders by utilising the company’s balance sheet strength,
whilst retaining the capacity to invest in new growth areas. US genetic sequencing firm Illumina reversed weakness following January’s style rotation into value stocks, the company has had a steady stream of product releases including a comprehensive cancer testing panel for the European market. Kering, the French luxury goods company was the largest detractor during the month, The share price has been impacted the current macro and geopolitical backdrop that has created uncertainty around consumer confidence and discretionary income. However, the company had recently posted strong results in February, with improved momentum for the firm’s Gucci brand. In addition, Moncler the Italian luxury jacket company also detracted. Again, the recent weakness has been driven by the significant developments in Europe with the outbreak of war in Ukraine and the threat to consumer confidence and discretionary income posed by significant inflation. The company was particularly exposed to the initial concern as it has a very significant portion of its supply infrastructure in Romania and the market became immediately risk averse around exposure to Eastern Europe. Our interactions with the company confirm that there.
has been no impact to supply or logistics in Romania. In addition, the company had posted strong financial year results in late February, showing good momentum in the seasonally important fourth quarter of 2021. Tencent, the Chinese internet giant was also negative after the company announced results in March that were below market expectations.
Performance Commentary - September 30, 2021 Global equities (as represented by the MSCI ACWI ex Australia index) declined during the month, falling -3.02%. The Fund also fell during the month by – 6.47% (net of fees). The month saw markets pull back over concerns over potential interest rate rises and contagion from the Evergrande scandal in the Chinese rea estate sector. The market rotation into value stocks from growth was a notable headwind in September. Mastercard, the US payments firm recovered in September as the negative sentiment arising from the emergence of the COVID-19 Delta variant was countered by a volume update released by a peer, which highlighted the company’s more resilient performance versus market expectation.
Masimo, US medical devices firm performed strongly through September the business presented at a couple of investor conferences and continued its steady release of scientific journals supporting the use of its products. Chinese pharmaceutical stock Wuxi Biologic outperformed during the month although there was sparse news flow it reversed weakness from July and August. On the other side, industrial firm Kingspan and Atlas Copco share prices declined due to September’s rotation into value stocks after strong performance earlier in the year. Abode was also negative over the month, due to market disappointment over the firm’s recurring revenues and the market rotation into value stocks. Over the month there were no transactions in the Fund.
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