Pan-Tribal Global Equity Fund (ETL0419AU) Report & Performance

During July, global equity markets continued the upward trajectory that has been characteristic of the calendar year to date. The MSCI ACWI (in AUD) rose 2.40% over the month as investors took confidence from inflation and GDP data across developed markets that suggested a softer landing for economies than had previously been anticipated. The PAN-Tribal Global Equity Fund returned 5.64% (net of fees) during July, outperforming the MSCI ACWI (in AUD) by over 3%.

In keeping with the bottom-up, active, stock picking investment philosophy of Davis Advisors, the main driver of the Fund’s outperformance over the month was security selection. Chinese holdings JD.com and Meituan were among the companies driving strong stock selection within the Consumer Discretionary sector. Likewise Ping An Insurance (China) and Julius Baer (Switzerland) outperformed within the Financials sector, whilst the only sector with marginally negative stock selection was Information Technology.

Sector allocation also contributed to relative outperformance of the Fund. The overweight position to Financials bolstered returns moderately, whilst the portfolio’s overweight to Communication Services, and underweight to both Health Care and Information Technology also contributed albeit to a lesser extent. Detracting slightly from sector allocation was the underweight position in Energy which was the best performing MSCI sector over July. At a regional level, emerging markets outperformed developed markets and this was evident in the Fund’s performance with the overweight to China contributing significantly.

At an individual stock level (in addition to companies already mentioned) the Fund’s absolute returns benefitted from its holding in Meta (Communication Services, US) as well as additional Financials holdings in DBS Group (Singapore) and Wells Fargo (US). There were only five holdings in the portfolio that were down in absolute terms over the month, with the main laggards of these being Liberty Media (Communication Services, US), AIA (Financials, Hong Kong) and HollySys (Information Technology, China).

MGM Resorts International (Consumer Discretionary, US) was purchased as a new holding in the Fund over the month.

Global equity markets rallied across the board during the month of June, with the MSCI ACWI (in AUD) delivering a positive return of 2.87%. The PAN-Tribal Global Equity Fund benefitted from strong stock selection returning 5.09% over the month (net of fees), outperforming the MSCI AWCI by 2.22%. This takes performance of the Fund over the 2022/23 financial year to 20.92% (net of fees) in absolute terms.

The Davis Investment Discipline has its foundations in fundamentals-based, bottom-up research. We see this philosophy reflected in the attribution data with the key driver of relative performance over the month of June being stock selection. Stock selection was strongest within the Communication Services sector with Meta (US) being the largest contributor to relative return. Strong selection was also seen within the Financials, Healthcare and Industrials sectors, with Danske Bank (Denmark), Cigna (US) and Owens Corning (US), respectively, all performing well.

At the asset allocation level, sector allocation contributed somewhat to relative performance over the month, however this was more than offset by regional allocation, noting that both sector and regional positioning are a direct outcome of the individual holdings within the portfolio, with neither being determined by top-down macro views. At the sector level, the Fund’s overweight to the Consumer Discretionary sector was positive, as was the underweight positioning to the Health Care and Consumer Staples sectors.

Weighing on relative performance was the underweight to Industrials and the overweight to Communication Services. From a regional standpoint, Asia ex-Japan underperformed US and European equity markets during June, and as such the Fund’s overweight exposures to China, Singapore and South Korea all contributed in roughly equal parts to relative underperformance at a regional level.

Global economic data was mixed over the month of May. Labour market data was positive throughout the US, UK & Europe with low unemployment and steady wages growth, however all three economies also reported data signalling a contraction in manufacturing activity. Against this mixed backdrop the MSCI ACWI (in AUD) gained 1.02% over the period. The PANTribal Global Equity Fund was slightly down by 0.45% (net of fees) over May with stock selection the main detractor from relative performance.

Lagging performance from both Meituan (China) and Prosus (Netherlands) drove relative underperformance from a stock selection point of view within the Consumer Discretionary sector during the month. Also weighing on performance was stock selection within the Financials and Materials sectors driven by companies such as Julius Baer (Switzerland) and Teck Resources (Canada), respectively. Although not a direct holding in the portfolio, the failure of First Republic Bank in the US continued to weigh on banking stocks more broadly and contributed to heightened volatility across the Financials sector. Positively, strong performance from US companies Meta (Facebook) and Alphabet (Google) contributed to outperformance within the Communication Services sector.

Sector allocation was slightly negative over May. The Fund’s underweight positioning to the Consumer Staples, Energy and Healthcare sectors contributed to relative performance, as did the overweight to Communication Services. However, this was offset by the overweight to Financials and underweight to Information Technology, the latter being the strongest performing MSCI sector during the month. From a regional perspective the Fund’s exposure to emerging markets also weighed on relative performance.

Amongst the top contributors to the Fund’s absolute performance over the month (in addition to companies mentioned already) were Amazon (US, Consumer Discretionary), Capital One Financial (US, Financials) and Samsung (Korea, Information Technology). Conversely, Financials holdings Ping An Insurance (China), DBS Group (Singapore) and AIA (Hong Kong) weighed on the Fund’s returns.

There were no new positions established in the Fund during May, nor positions exited.

The MSCI ACWI (in AUD) returned 2.80% over the month of April with global equity markets continuing the upward trajectory they have enjoyed calendar year to date. Economic data pointed to growth ahead of expectations in the US, UK & Europe, and Q1 GDP data out of China was also stronger than anticipated. The PAN-Tribal Global Equity Fund delivered a return of 3.93% (net of fees), outperforming the MSCI ACWI by 1.13%.

The ‘Davis Investment Discipline’ focuses on bottom-up stock selection and seeks to purchase durable businesses with expanding earnings at value prices and to hold these for the long term. In keeping with this discipline, the driver of outperformance during the month can be attributed to stock selection. Sector allocation was neutral whilst regional allocation detracted (noting that sector and regional allocations are direct consequences of each individual stock holding). Strong stock selection was observed in each of the Communication Services, Financials and Materials sectors with Meta (US), Ping An Insurance (China) and Teck Resources (Canada), respectively, key contributors. Conversely JD.com (China) underperformed, weighing down stock selection within the Consumer Discretionary sector.

With regard to sector allocation the Fund’s overweight to Financials and underweight to Information Technology contributed to relative performance. However, this was offset by underweights to Health Care, Energy and Consumer Staples, and the overweight to Consumer Discretionary, all of which combined to detract from relative returns.

Performance of global equities surprised on the upside over the March quarter, despite the ongoing conflict in Ukraine, US-China tensions, and the collapse of Silicon Valley Bank (SVB) which placed downward pressure on US and European financial stocks in the latter part of the quarter (noting that the Fund did not have any exposure to SVB). The PAN-Tribal Global Equity Fund returned 6.77% (net of fees) over the quarter, whilst the MSCI ACWI returned 8.65% in Australian dollar terms. Over the rolling 12 months, the Fund finished 4.25% (net of fees) ahead of the index.

In line with the active, bottom-up investment discipline of Davis Advisors, stock selection was the predominant detractor from the Fund’s relative underperformance over the quarter. Sector allocation also detracted slightly whilst regional allocation was broadly flat. Strong stock selection was seen within the Communication Services sector with Meta (US) the standout performer. However, this was offset by relative underperformance within the Consumer Discretionary sector where JD.com (China), Delivery Hero (Germany) and Meituan (China) all underperformed. Stock selection also detracted, albeit to a lesser extent, within the Health Care and Information Technology sectors.

After outperforming strongly in January, the PAN-Tribal Global Equity Fund consolidated some of its previous gains to return negative 0.38% in February in what was a more subdued month for global equities. The MSCI ACWI (in AUD) returned 1.50%. While the US Federal Reserve increased interest rates over the month, such an increase was widely anticipated by the market and therefore failed to surprise investors.

Stock selection was strong within the Communication Services sector over the month led by Meta (US) and iQiyi (China), however, this was more than offset by underperformance within the Consumer Discretionary sector.

Neither JD.Com, China’s largest online retailer, nor Delivery Hero, a large European online food delivery service were immune to the protracted downward pressure on global consumer discretionary spending with investors selling off both stocks sharply.

Sector allocation detracted slightly from relative performance during February whilst regional positioning detracted more markedly, with the overweight to emerging markets (notably via China) the largest underperformer. It’s important to recall that both sector and regional positioning within the Fund is a direct output of the bottom-up stock selection process.

The Fund exited its position in Alibaba during February, whilst there were no new purchases over the month.