Perpetual Global Share Class A (PER0733AU) Report & Performance

What is the Perpetual Global Share Class A fund?

Perpetual Global Share Class A aims to provide investors with long-term capital growth and income through investment in quality global shares and outperform the MSCI World Accumulation Index ($A) over rolling three-year periods. Perpetual aims to achieve the Fund’s investment objectives by adopting a ‘bottom-up’ stock selection approach to investing, where the decision to buy or sell is based on fundamental quality and valuation; constructing a portfolio within a framework that is benchmark independent in terms of stock and sector weights, although the Fund’s performance is measured against the MSCI World Net Total Return Index (AUD) for the purpose of reporting and determining whether performance-related fees are payable in the underlying fund; adding value from the portfolio manager’s high conviction approach to stock selection. Currency hedging can be used with the aim of protecting the value of the Fund’s assets. Derivatives may be used in managing the Fund.

Growth of $1000 Investment Over Time

Performance Report

Peer Comparison Report

Peer Comparison Report

Latest News & Updates For Perpetual Global Share Class A

Perpetual Global Share Class A Fund Commentary September 30, 2023

The Barrow Hanley Global Value strategy outperformed the MSCI World Index in September. The portfolios’ underweight to the Information Technology sector and overweight to the Energy and Financials sectors combined with effective selection in the Financials, Consumer Discretionary, Industrials, and Utilities sectors were the primary contributors to relative returns. Regionally, the portfolios’ overweight to the UK and effective selection in the U.S. and continental Europe were primary drivers to the strong relative returns.

After underperforming in the month of August, HSBC Holdings Plc was among the top contributors in September. At several industry conferences, HSBC’s management reiterated that credit costs related to the company’s Chinese real estate loan portfolio should remain manageable. In addition, one-month HIBOR rebounded meaningfully, which should support loan yields and net interest margin going forward. Management continues to execute on simplifying the business and exiting non-core/lower-returning businesses while controlling expenses and returning excess capital to shareholders.

Cigna Group benefited from the strength in Health Care stocks in September, up strongly in a down market. Cigna noted in the month that health care utilization trends are tracking in line with expectations of its current guidance, likely helping to provide some positive sentiment around the stock. We continue to see Cigna trading at a meaningful valuation discount to its peers.

Southwest Airlines Co. underperformed in September as the company guided lower on higher fuel costs and lower revenue per available seat mile (RASM). During the month we reduced our position in the security as we look to monitor whether the headwinds Southwest is currently facing are temporary and adjustments being made by company management will be able to overcome these headwinds. Oracle Corporation underperformed in September in sympathy with the Information Technology sector combined with its having reported a mixed quarter in the month. As the stock had been a very strong performer in the portfolio, we sold our position in the month.

READ HISTORICAL PERFORMANCE COMMENTARIES

Product Snapshot

  • Product Overview
  • Performance Review
  • Peer Comparison
  • Product Details

Product Overview

Fund Name APIR Code
? A Product Code is unique a identifier code issued by a group or governing body, to reference products in a large group. For an example, APIR codes are commonly used for Funds and Ticker codes are commonly used for Securities such as ETFs and Stocks.
Structure
?
Asset Class
? An Asset Class breakdown provides the percentages of core asset classes found within a mutual fund, exchange-traded fund, or another portfolio. Asset classes (in microeconomics and beyond) generally refer to broad categories such as equities, fixed income, and commodities.
Asset Category
? An Asset Category is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset categories (or a sub-asset class) are made up of instruments which often behave similarly to one another in the marketplace, looking down to the Asset Category level is important if looking to build a diversified portfolio.
Peer Benchmark Name
? A Peer Index (benchmark) refers to a peer group of investment managers who have the same investment style or category. It is used to compare the performance of one manager to their peer group, which makes it simpler for investors to choose between the vast number of investment managers.
Broad Market Index
? A Market Index (benchmark) refers to a hypothetical portfolio of investments that represents a segment, asset or category of an investable market. Market Indices are used to benchmark managers performance, to assist their style reliability and ability to provide excess returns.
FUM
? Funds/Assets under management (AUM) is the total market value of the investments that a person or entity manages on behalf of clients. Assets under management definitions and formulas vary by company.
Management Fee
? A management fee is a charge levied by an investment manager for managing an investment fund. The management fee is intended to compensate the managers for their time and expertise for selecting finanical products and managing the portfolio.
Performance Fee
? A performance fee is a payment made to an investment manager for generating positive returns. This is as opposed to a management fee, which is charged without regard to returns. A performance fee can be calculated many ways. Most common is as a percentage of investment profits, often both realized and unrealized. It is largely a feature of the hedge fund industry, where performance fees have made many hedge fund managers among the wealthiest people in the world.
Spread
? A spread can have several meanings in finance. Basically, however, they all refer to the difference between two prices, rates or yields. In one of the most common definitions, the spread is the gap between the bid and the ask prices of a security or asset, like a stock, bond or commodity. This is known as a bid-ask spread.
Perpetual Global Share Class APER0733AUManaged FundsForeign EquityLarge ValueForeign Equity - Large Value IndexDeveloped -World Index469.12 M0.99%0.00%0.3%

Performance Review

Fund Name Last Month
? Returns after fees in the most recent (last) month).
3 Months Return
? Returns after fees in the most recent 3 months.
1 Year Return
? Trailing 12 month returns.
3 Years Average Return
? Average Annual returns from the last 3 years.
Since Inc. Average Return
? Average (annualised) returns since inception
1 Year Std. Dev. (Annual)
? The standard deviation (or annual volatility) of the last 12 months.
3 Years Std. Dev. (Annual)
? The average standard deviation (or annual volatility) from the last 3 years.
Since Inc. Std. Dev. (Annual)
? The average standard deviation (or annual volatility) since the fund inception.
1 Year Max Drawdown
? The maximum drawdown in the last 12 months - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
3 Year Max Drawdown
? The maximum drawdown in the last 36 months - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
Since Inc. Max Drawdown
? The maximum drawdown since inception - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
Perpetual Global Share Class A1.58%7.94%16.18%9.96%12.12%8.44%9.59%10.97%-3.8%-8.47%-13.04%

Peer Comparison

Fund Name Peer Index Name
? A group of individuals who share similar characteristics and interests are called peer groups. Peer group analysis is an essential part of assessing a price for a particular stock in investment research. The emphasis here is on making a comparison, meaning that the peer group constituents should be more or less identical to the company being examined, especially in terms of their main business and market capitalization areas.
12 Months Excess Return
? Excess returns are an important metric that helps an investor to gauge performance in comparison to other investment alternatives. In general, all investors hope for positive excess return because it provides an investor with more money than they could have achieved by investing elsewhere.
Excess Return Annualised Since Inception
? Excess returns are an important metric that helps an investor to gauge performance in comparison to other investment alternatives. In general, all investors hope for positive excess return because it provides an investor with more money than they could have achieved by investing elsewhere.
12 Months Alpha
? Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over 12 months. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.
Alpha Annualised Since Inception
? Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market annualized since inception. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.
12 Months Beta
? Rolling 12Month Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).
Beta Annualised Since Inception
? Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).
12 Months Tracking Error
? 12Month Tracking error is the difference in actual performance between a position (usually an entire portfolio) and its corresponding benchmark over the last 12 months. The tracking error can be viewed as an indicator of how actively a fund is managed and its corresponding risk level. Evaluating a past tracking error of a portfolio manager may provide insight into the level of benchmark risk control the manager may demonstrate in the future.
Tracking Error Since Inception
? Since Inception tracking error is the difference in actual performance between a position (usually an entire portfolio) and its corresponding benchmark since inception. The tracking error can be viewed as an indicator of how actively a fund is managed and its corresponding risk level. Evaluating a past tracking error of a portfolio manager may provide insight into the level of benchmark risk control the manager may demonstrate in the future.
12 Months Correlation
? Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0.
Correlation Since Inception
? Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0.
Perpetual Global Share Class AForeign Equity - Large Value Index-0.53%1.28%NA%NA%NA%0.814.44%3.63%0.890.95

Product Details

Fund Name Verifed by SMSF Mates Manager Address Phone Website Email
Perpetual Global Share Class AYes-https://www.perpetual.com.au/-

Product Due Diligence

What is Perpetual Global Share Class A

Perpetual Global Share Class A is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - Large Value 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 Perpetual Global Share Class A has Assets Under Management of 469.12 M with a management fee of 0.99%, a performance fee of 0.00% and a buy/sell spread fee of 0.3%.

How has the investment product performed recently?

The recent investment performance of the investment product shows that the Perpetual Global Share Class A has returned 1.58% in the last month. The previous three years have returned 9.96% annualised and 10.97% each year since inception, which is when the Perpetual Global Share Class 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 Perpetual Global Share Class A first started, the Sharpe ratio is NA with an annualised volatility of 10.97%. The maximum drawdown of the investment product in the last 12 months is -3.8% and -13.04% 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 Perpetual Global Share Class A has a 12-month excess return when compared to the Foreign Equity - Large Value Index of -0.53% and 1.28% 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. Perpetual Global Share Class A has produced Alpha over the Foreign Equity - Large Value Index of NA% in the last 12 months and NA% since inception.

What are similar investment products?

For a full list of investment products in the Foreign Equity - Large Value Index category, you can click here for the Peer Investment Report.

What level of diversification will Perpetual Global Share Class A provide?

Perpetual Global Share Class A has a correlation coefficient of 0.95 and a beta of 0.81 when compared to the Foreign Equity - Large Value 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.

How do I compare the investment product with its peers?

For a full quantitative report on Perpetual Global Share Class A and its peer investments, you can click here for the Peer Investment Report.

How do I compare the Perpetual Global Share Class A with the Developed -World Index?

For a full quantitative report on Perpetual Global Share Class A compared to the Developed -World Index, you can click here.

Can I sort and compare the Perpetual Global Share Class A to do my own analysis?

To sort and compare the Perpetual Global Share Class A financial metrics, please refer to the table above.

Has the Perpetual Global Share Class A been independently verified by SMSF Mate?

This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.

How can I invest in Perpetual Global Share Class A?

If you or your self managed super fund would like to invest in the Perpetual Global Share Class A please contact via phone or via email .

How do I get in contact with the Perpetual Global Share Class A?

If you would like to get in contact with the Perpetual Global Share Class A manager, please call .

Comments from SMSF Mates

SMSF Mate does not receive commissions or kickbacks from the Perpetual Global Share Class A. All data and commentary for this fund is provided free of charge for our readers general information.

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Historical Performance Commentary

Performance Commentary - June 30, 2023

The Fund’s largest overweight positions include Air Products and Chemicals Inc, Oracle Corporation and Seven & I Holdings Co Ltd. Conversely, the Fund’s largest underweight positions include Apple Inc., Microsoft Corporation, and Alphabet, Inc. Class A, all of which are not held in the Fund.

Vertiv Holdings Co. Class A contributed positively to relative performance during the quarter due to the bullish sentiment surrounding AI stocks. As a leading supplier of equipment and technology to data centres, the company stands to benefit from increased spending on digital infrastructure for expansion and upgrades. Company management continues to execute its strategy to improve margins, reversing the cost headwinds from the prior year, and delivering on operational improvements and greater free cash flow conversion. Backed by sustainable growth in their end markets, Vertiv continues to trade at an attractive valuation as they build a profitable backlog and remain well positioned for future earnings growth.

Lithia Motors, Inc. outperformed in the second quarter. It is becoming increasingly clear to investors that our view that the company’s current earnings are durable, rather than substantially inflated, as many have argued. That growing recognition, alongside increased optimism about the economy in general, is driving the beginnings of a re-rating in Lithia’s stock. We continue to see the shares as deeply undervalued and earnings should grow materially in 2024. Lithia currently trades at a forward P/E of 9x.

Northern Trust Corporation underperformed in sympathy with banks facing expectations of deposit outflows. While the top-line results matched expectations, EPS guidance was a little lower for the full year on continued deposit pressure. Pressure on custody revenue continued driven by market trends, but servicing and wealth management showed solid organic growth in the most recent quarter. Capital remains robust and the diversified businesses mix coupled with low credit exposure relative to other financials suggests the bank trades at too large a discount (12x forward price to earnings).

Aptiv PLC detracted from performance after margins fell short of estimates in their most recent quarterly release. However, full year guidance was reiterated, and the stock stands to benefit as auto manufacturers’ production normalizes and increasingly demand their solutions for electrical systems and autonomous vehicles. Aptiv provides integrated power management solutions, which as a whole use less power, adding to electric vehicle efficiency, and improving their range, a key selling point to the end consumer. Valuation remains attractive as cyclical headwinds abate and electric vehicle production increases.

Performance Commentary - March 31, 2023

The Fund’s largest overweight positions include Merck & Co., Inc., Oracle Corporation, and Air Products and Chemicals, Inc. Conversely, the Fund’s largest underweight positions include Apple Inc., Microsoft Corporation, and Alphabet, Inc. Class A, all of which are not held in the Fund. Rheinmetall AG is one of the leading defense contractors in Europe. The stock continued its outperformance in the first quarter following several positive events. Toward the end of last year, Rheinmetall announced an accretive acquisition of Spanish ammunition manufacturer Expal. This further increases its exposure to its highest-margin business wherein demand is also very strong. Rheinmetall also saw a pick-up in orders as strong demand is starting to convert to new business, and on the back of strong share price performance, the stock was included in the German DAX index in March.

Baidu, Inc. Class A is the largest search engine in China and leader in new technologies such as AI and autonomous driving in China. The stock outperformed during the quarter on stronger December quarter results with a positive outlook for 2023 on improving macro and recovering in advertising spend post-COVID. In addition, Baidu also launched its version of the Chatbot and will integrate its AI capabilities across operations to help boost search and expand market share and size in the future. Although its Chatbot is still early in development and monetisation, investors were excited about Baidu’s leadership in the space and the potential additional opportunities this could generate in the future. Fidelity National Information Services, Inc. was a detractor during the quarter after providing initial earnings guidance below expectations. This was exacerbated by concerns surrounding the banking industry broadly, given the collapse of two US regional banks. The company is a technology solutions provider for banks and capital markets institutions, and therefore any concerns about banks and potential future bank spending can weigh on the stock. However, we believe these concerns specifically for the stock have been more than priced in, as no customer accounts for more than about 1% of their revenue, and over 80% of the revenue within their banking segment is recurring.

Insurance companies American International Group, Inc. and Allstate Corporation were among the top detractors in the quarter, following the path of other industries within the Financials sector, specifically banks. We believe that fears in the market about available for sale and held to maturity securities at banks was read through to insurers who typically have large investment portfolios but do not have “run on the bank” liquidity risk. Given the recent sell-off in these stocks and the lack of material new news, we believe the risk/reward of the insurance companies is very compelling at current levels.

Performance Commentary - December 31, 2022

The Fund’s largest overweight positions include Merck & Co., Inc., Oracle Corporation, and Air Products and Chemicals, Inc. Conversely, the Fund’s largest underweight positions include Apple Inc., Microsoft Corporation, and Alphabet, Inc. Class A, all of which are not held in the Fund. Air Products and Chemicals, Inc. added to performance as the company posted another strong quarter of double-digit revenue and earnings growth. A new plant coming online in Asia helped volumes while pricing was strong globally, offsetting some of the recent cost inflation. Their backlog continues to grow and remains meaningfully higher than history, over US$21B now versus their entire company’s gross plant, property, and equipment of US$29B today.

As the company executes on this backlog, distributable cash flow could more than double, and this embedded future growth remains underappreciated in shares today. Merck & Co., Inc. benefitted from the market’s tendency to favor more defensive sectors, as Health Care was one of the better-performing sectors in the quarter, with Merck doing better than peers. Strength in the quarter was not driven by any dramatic change in fundamentals, but rather by a steady progress on pipeline drugs and the earnings coming slightly ahead of expectations.

The market also sensed a meaningful change in Merck’s commentary on M&A, now indicated as focused on collaborations and small tuck-in acquisitions rather than larger deals. We like this capital discipline. Despite the recent strong outperformance, we see the risk/reward profile sufficiently reasonable to continue owning the shares. Fidelity National Information Services, Inc. detracted from performance in the quarter as the company reported disappointing earnings in November driven by higher-than-expected costs, slowing revenue growth, and foreign exchange/interest expense headwinds from the stronger dollar and higher interest rates. Despite challenges for the stock price in the quarter, we remain positive on what we believe is a solid business following management change, board turnover, and an activist investor now helping drive shareholder value creation.

The stock is compelling at approximately 10x forward price-to-earnings, a meaningful discount to where this business has historically traded. Medtronic Plc had two disappointments in the quarter, causing the stock to detract from performance. First, its 2nd renal denervation trial failed to hit the primary endpoint in the most recently conducted studies, thus creating a market controversy on the future revenues that can be expected from this blood pressure-reducing procedure. Additionally, the company announced results that missed on organic growth and guided lower top-line growth. Although disappointing, we believe the full renal denervation data combining all the trials is still compelling for a very prevalent condition in a difficult-to-treat population. We believe the company offers good long-term value within the Medical Devices group.

Performance Commentary - September 30, 2022

The Fund’s largest overweight positions include Merck & Co., Inc., Allstate Corporation, and Air Products and Chemicals, Inc. Conversely, the Fund’s largest underweight positions include Apple Inc., Microsoft Corporation, and Alphabet, Inc. Class A, all of which are not held in the Fund. Seven & I Holdings Co., Ltd. is a global retailer with market leadership in convenience stores. The shares outperformed during the period, driven by continued earnings strength, and management has now upgraded guidance multiple times this year. The company is benefitting from market tailwinds such as higher fuel margins, as well as currency benefits, in addition to company-specific initiatives such as strict cost discipline and achieving synergy milestones post the acquisition of Speedway. We remain constructive on the shares, especially as management has renewed its focus on capital discipline and corporate governance reforms, which we view as additional upside drivers. Hess Corporation, a global independent oil and gas producer, boosted relative performance as its operations in Guyana continued to deliver.

Recent discoveries have increased the resource base and production proceeds are starting to contribute to overall cash flow. Management reactivated its share repurchase in order to return this excess cash to shareholders, in addition to dividends. The valuation remains attractive ahead of the continued ramp-up in Guyana asset growth potential as well as its other production areas, including the Bakken and Gulf of Mexico. Rheinmetall is well positioned to benefit from a material step-up in defence spending following the invasion of Ukraine. This transformation of the growth outlook drove very significant outperformance in the first half of the year with the stock nearly doubling. The stock then underperformed in the third quarter as it gave back some gains and momentum cooled, with some large orders expected for 2022 deferred to 2023. The strong growth outlook remains intact, however, and the valuation is attractive at less than 8x 2023 EV/EBIT. National Grid plc detracted from performance as Utility stocks failed to provide downside protection against the backdrop of higher interest rates. Further, within the UK and across Europe, governments have talked about using pricing caps, which could impact profitability. We believe that the move down in National Grid is more macro driven versus any issue with its underlying fundamentals and, looking through this macro-overhang, we believe the company continues to offer a compelling risk/reward opportunity over the long term.

Performance Commentary - June 30, 2022

The Fund’s largest overweight positions include BAE Systems Plc, Merck & Co., Inc., and Air Products and Chemicals, Inc. Conversely, the Fund’s largest underweight positions include Apple Inc., Microsoft Corporation, and Alphabet, Inc. Class A, all of which are not held in the Fund.

Merck & Co., Inc., a multinational pharmaceutical company, was a top contributor to relative performance driven by strong performance across its segments. Its animal health and vaccine franchises continued to deliver strong growth and look to continue to compound those results in the future. Given the sharp decline seen in smaller pharmaceutical firms’ valuations, management commented on remaining disciplined in terms of capital deployment. Within Merck’s pharmaceutical franchise, its key immuno-oncology drug Keytruda posted another solid quarter of growth. Dollar General Corporation, a leading discount retailer, was a top relative contributor in the quarter, benefitting from better-than-expected earnings results against its most challenging year-over-year comparison of the year. Margin headwinds from elevated transportation costs are easing as ocean shipping rates have fallen by more than a third since the beginning of the year. As well, Dollar General remains well positioned given its mix of sales is shifting back towards consumables versus non-consumables.

SeaWorld Entertainment, Inc. detracted from relative performance. We noted previously that despite reporting very strong operating results, the stock traded lower along with the broader Consumer Discretionary sector. SeaWorld has historically seen only relatively modest impacts to its business from slower economic climates and, given pent-up demand for travel and attendance levels that entered the year still below 2019 levels, we believe current outcomes are likely to rhyme with the past. The company is also aggressively repurchasing its shares this year at what is near an all-time low valuation, given its excess cash position and the strength of its balance sheet. Koninklijke Philips N.V. reported mixed results early in the quarter. Personal Health outperformed revenue and EBITA expectations, while margins in Diagnostics & Treatment and Connected Care trailed. Overall, adjusted EBITA was better than consensus. Importantly, company management maintained guidance for the year. However, the update on the Respironics CPAP recall was incrementally disappointing. The company increased its provision to account for +300k more units to be replaced/remediated.

Performance Commentary - March 31, 2022

The Fund’s largest overweight positions include Seven & I Holdings Co., Ltd., Merck & Co., Inc., and Allstate Corporation. Conversely, the Fund’s largest underweight positions include Apple Inc., Microsoft Corporation, and Alphabet, Inc. Class A, all of which are not held in the Fund.

With the outbreak of war in Ukraine, the portfolio’s holdings in defence stocks Rheinmetall AG and BAE Systems plc were up firmly in the quarter as European governments recognised the need to spend more on their national defence given years of underinvestment. Rheinmetall is one of the leading defence contractors in Europe, with market-leading positions in land vehicles, large calibre weapons, and ammunitions and electronic solutions. The company is a key supplier to the German army as well as a range of both NATO and non-NATO countries around the world. Similarly, BAE Systems plc is the largest non-U.S. defence contractor in the world and has a diversified portfolio with a strong technology focus covering air, land, and sea. BAE Systems plc performed strongly on the back of potentially higher defence spending, but also reported full-year 2021 numbers in the quarter with EPS and free cash flow ahead of consensus and guided free cash flow meaningfully over the next few years.

We continue to hold both names as we see a compelling risk/reward profile. Vertiv Holdings Co. Class A, a leading provider of power management and thermal systems for data centres and other critical infrastructure, faced issues with their suppliers delivering the necessary components as planned and securing transport of those components at previously agreed upon prices along with broader inflationary pressures. Management stepped in and took swift action to remedy the internal processes and adjust price/cost to balance, however, near-term earnings are currently depressed, with shares trading at 16.5x forward EV/EBITDA. Should their margin profile normalise as we expect, the stock is trading at a notable discount to its peers and create a re-rating potential as results match or exceed expectations. Axalta Coating Systems Ltd., a performance coatings business with leading positions in automotive refinish and OEM, faced rising input prices for solvents, resins, and pigments driven by rise in oil prices. Management remains committed to raising prices, though there will be some lag until they catch up. They also continue to invest into sustainability initiatives, helping offset rising carbon costs and drive efficiencies. Semiconductor shortages persisted, impacting new car production volumes, as people are still returning to their normal driving habits. A normalisation in miles driven should create the need for accident repair. These headwinds are well-known, and more likely to be opportunities for upside improvement as they reverse in the future. Shares are very attractive with solid free cash generation in the interim and trade at 13.7x forward price-to-earnings.

Performance Commentary - September 30, 2021

The Fund’s largest overweight positions include Opendoor Technologies Inc, JOYY, Inc. Sponsored ADR Class A, and GXO Logistics Inc. Conversely, the Fund’s largest underweight positions include Apple Inc., Microsoft Corporation, and Alphabet Inc. Class A.

The overweight position in digital infrastructure provider Mawson Infrastructure Group, Inc. (+88.7%) contributed to relative performance. The stock rose sharply following an announcement that it had completed a ~US$37m private equity offering of its common stock. The offering was oversubscribed and supported by new and existing institutions, high-net-worth investors, and family offices. The proceeds are intended to be used to acquire additional bitcoin mining hardware as well as capital expenditure relating to its facilities and infrastructure. The overweight position in pharmaceutical producer Merck KGaA (+38.7%) contributed to relative performance. The stock rose after reporting that it had entered into a manufacturing agreement with Kenya-based Universal Corporation Ltd. for the large-scale production of a new paediatric medication. The medication is used to treat the neglected tropical disease Schistosomiasis in children under six years of age and is currently in late-stage development. The agreement with Universal Corp includes the build-up of extensive production capacities in Kenya for the future provision of the treatment in endemic African countries.

The overweight position in British online fashion retailer Boohoo Group Plc (-9.2%) detracted from relative performance. The stock came under pressure after reports emerged that the company’s executive chairman, Mahmud Kamani, was ordered to give evidence in a lawsuit alleging that the company had deceived US customers with fraudulent pricing. The deposition will cover issues related to class-action certification of the lawsuit and Boohoo’s pricing and markdown practices. Management has denied all wrongdoing and will intends on defending itself against these allegations.

The overweight position in Chinese social communications platform provider JOYY Inc, Sponsored ADR Class A (-13.5%) detracted from relative performance. The stock was adversely impacted after Chinese regulators tightened rules to restrict companies from listing overseas. The revised rules would require firms using a variable interest entity structure to obtain approval from Beijing before listing in Hong Kong or the US. The new legislation is reportedly designed to govern cross-border data flows related to overseas listings and intensify punishment for companies that fail to comply in order to prevent illegal activities in the securities market.

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