Walter Scott Global Equity Hedged (MAQ0557AU) Report & Performance

What is the Walter Scott Global Equity Hedged fund?

The Fund provides exposure to a concentrated portfolio of global equities by investing in securities which, in Walter Scott’s opinion, offer strong and sustained earnings growth by investing in the Walter Scott Global Equity Fund (Underlying Fund).

  • Walter Scott & Partners Limited (Walter Scott) believes in active, bottom-up stock selection. Investment decisions are driven by in-depth financial analysis and qualitative research that aims to identify companies capable of generating high levels of internal earnings growth.
  • The Fund aims to achieve a long-term total return (before fees and expenses) that exceeds the MSCI World ex Australia Index, in $A unhedged with net dividends reinvested (Benchmark).

Growth of $1000 Investment Over Time

Performance Report

Peer Comparison Report

Peer Comparison Report

Latest News & Updates For Walter Scott Global Equity Hedged

Walter Scott Global Equity Hedged Fund Commentary August 31, 2023

• The Fund returned 1.99%, net of fees, in August 2023, compared with a return for the Benchmark of 1.60%, with some mid-month volatility reflecting renewed investor caution after the solid gains in many markets of late.

• Nearly all sectors, with the exceptions of Materials and Utilities, moved higher in August in unhedged terms; IT and Health Care made the largest contributions to index returns. For the Fund, the largest relative sector contributors included holdings in Health Care, led by Novo Nordisk, and in Consumer Discretionary, including TJX Companies and Booking Holdings. Relative detractors included holdings in IT, such as Fortinet and Cognex, and an underweight to the Energy sector. There were no initial purchases or final sales within the portfolio during the month.

• Powerful, secular trends, often driven by innovation, continue to feature across a number of businesses in the portfolio. This month, Novo Nordisk briefly knocked LVMH off the top spot as the largest company in Europe by market capitalisation. The pharmaceutical company’s share price jumped sharply after it announced phase-three trial results that showed its obesity drug Wegovy cuts the risk of major cardiovascular events by a more-than-expected 20%. In the US at present, Medicare is prohibited from providing coverage of obesity drugs although there is growing momentum behind efforts to change this (the Treat and Reduce Obesity Act has been reintroduced to Congress). Mainstay products, such as Novo’s GLP-1 diabetes drugs, have been performing well. The company recently announced first-half results which saw sales rising 30% year on year on a constant currency basis while operating profit jumped 32%.

• The potential for higher-for-longer rates amidst an uncertain growth outlook in much of the world suggests that further equity market volatility lies ahead, with earnings now required to catch up with valuations in a few areas. Many portfolio companies have been continuing to display good operational resilience, but earnings delivery is not always linear, and several businesses are experiencing cyclical headwinds. Walter Scott’s conviction in the companies held remains high, thanks to strong balance sheets, market leadership and a long growth runway that will endure beyond the current macro challenges.

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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.
Walter Scott Global Equity HedgedMAQ0557AUManaged FundsForeign EquityCurrency HedgedForeign Equity - Currency Hedged IndexDeveloped -World Index972.47 M1.28%0.00%0.36%

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.
Walter Scott Global Equity Hedged-0.31%2.11%20.84%5.09%9.73%9.91%15.93%14.04%-4.22%-26.02%-34.91%

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.
Walter Scott Global Equity HedgedForeign Equity - Currency Hedged Index-3.19%0.9%NA%NA%NA%13.54%4.39%0.940.95

Product Details

Fund Name Verifed by SMSF Mates Manager Address Phone Website Email
Walter Scott Global Equity HedgedYes-https://www.macquarie.com/id/en.html-

Product Due Diligence

What is Walter Scott Global Equity Hedged

Walter Scott Global Equity Hedged is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - Currency Hedged 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 Walter Scott Global Equity Hedged has Assets Under Management of 972.47 M with a management fee of 1.28%, a performance fee of 0.00% and a buy/sell spread fee of 0.36%.

How has the investment product performed recently?

The recent investment performance of the investment product shows that the Walter Scott Global Equity Hedged has returned -0.31% in the last month. The previous three years have returned 5.09% annualised and 14.04% each year since inception, which is when the Walter Scott Global Equity Hedged 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 Walter Scott Global Equity Hedged first started, the Sharpe ratio is NA with an annualised volatility of 14.04%. The maximum drawdown of the investment product in the last 12 months is -4.22% and -34.91% 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 Walter Scott Global Equity Hedged has a 12-month excess return when compared to the Foreign Equity - Currency Hedged Index of -3.19% and 0.9% 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. Walter Scott Global Equity Hedged has produced Alpha over the Foreign Equity - Currency Hedged 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 - Currency Hedged Index category, you can click here for the Peer Investment Report.

What level of diversification will Walter Scott Global Equity Hedged provide?

Walter Scott Global Equity Hedged has a correlation coefficient of 0.95 and a beta of 1 when compared to the Foreign Equity - Currency Hedged 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 Walter Scott Global Equity Hedged and its peer investments, you can click here for the Peer Investment Report.

How do I compare the Walter Scott Global Equity Hedged with the Developed -World Index?

For a full quantitative report on Walter Scott Global Equity Hedged compared to the Developed -World Index, you can click here.

Can I sort and compare the Walter Scott Global Equity Hedged to do my own analysis?

To sort and compare the Walter Scott Global Equity Hedged financial metrics, please refer to the table above.

Has the Walter Scott Global Equity Hedged 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 Walter Scott Global Equity Hedged?

If you or your self managed super fund would like to invest in the Walter Scott Global Equity Hedged please contact via phone or via email .

How do I get in contact with the Walter Scott Global Equity Hedged?

If you would like to get in contact with the Walter Scott Global Equity Hedged manager, please call .

Comments from SMSF Mates

SMSF Mate does not receive commissions or kickbacks from the Walter Scott Global Equity Hedged. 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 - July 31, 2023

• The Fund returned -0.69%, net of fees, in July 2023, compared with a return for the Benchmark of 2.09%, with investors increasingly taking the view that the monetary policy tightening cycle is near an end following further signs of receding inflation.

• The Energy, Communication Services and Financials sectors saw the largest gains in a positive month for all sectors in the index. For the Fund, the largest relative sector detractors included holdings in Health Care, led by Edwards Lifesciences and Stryker Corporation, and in Financials, such as AIA Group and Prudential; these were partially offset by holdings in Industrials, including ODFL, Automatic Data Processing and Paychex. There were no initial purchases or final sales within the portfolio during the month.

• Walter Scott’s focus remains on businesses capable of delivering long-term growth, notwithstanding challenges they may have to face in the near-term. Edwards Lifesciences, a market leader in the treatment of Aortic Stenosis (AS), a serious heart condition that afflicts millions worldwide, has had to work its way through pandemic-related hurdles such as staff shortages. The first quarter of this year saw transcatheter aortic valve replacement (TAVR) procedures return to a double-digit growth rate, thanks to improved hospital staffing levels and a catch up in procedure volumes. However, in the second quarter, TAVR sales growth did not match the market’s elevated expectations. Overall sales are now expected to grow in the range of 10-13% thanks to improving hospital staffing levels and the launch of a new TAVR valve. Edwards remains well placed to tackle a dangerous, highly prevalent and under-diagnosed condition. Ageing demographics, enhanced awareness, improving diagnosis and new treatment indications will expand the company’s TAVR addressable market, while opportunities in the adjoining transcatheter mitral and triscupid therapy are only just starting to be explored.

• Despite some of the economic challenges, many leading businesses have been continuing to display resilience and growth, judging by recent earnings results. Although not all have been immune from macro headwinds, by virtue of their financial strength, market leadership, pricing power and excellent management, they remain well placed to take advantage of the long-term trends that will drive their earnings over the coming years.

Performance Commentary - June 30, 2023

• The Fund returned 3.06%, net of fees, in June 2023, compared with a return for the Benchmark of 3.12%, with the ongoing resilience of the American consumer and better-than-expected US export growth driving a higher revision of US Q1 GDP data and supporting equity markets.

• Nearly all market sectors rose in June, with Consumer Discretionary and IT representing the largest contributors to index returns. For the Fund, the largest relative sector contributors included holdings in Health Care, such as Edwards Lifesciences and West Pharmaceutical Services, partially offset by holdings in IT, namely Keyence. During the month, Walter Scott completed the final sale of Jardine Matheson, to raise funds for other portfolio companies with more compelling fundamental characteristics.

• Having just reported excellent first-quarter results (sales up 15% and gross margins at an all-time high for the same period) it was little wonder that representatives from Inditex were in a buoyant mood when members of the Walter Scott Research team met with the company in June. Management spoke of the consistency of the business and strong strategy execution that was reflected in broad-based growth across physical stores and online, concepts and geographies. The current strength of Inditex and its Zara brand is in many ways the culmination of a decade-long strategy that pivoted the business towards a pure sales growth model. Central to this was a ‘store optimisation’ program that involved fewer but larger stores supported by an online business utilising the very same logistics infrastructure. Today, Inditex is completely agnostic as to the channel through which consumers choose to shop.

• Investor sentiment arguably reflects a nascent ‘goldilocks’ scenario, founded on hopes of peaking interest rates, and economic growth proving more resilient than expected. The latter has certainly been the case, considering the dire forecasts for global economies of early last year. However, inflation has not been entirely conquered and its lag effect on consumer behaviour may yet to be fully felt, while there is a danger that central banks go too far in their attempts to rein in inflation. Quality companies have shown resilience and indeed growth in the face of this mixed macroeconomic climate, as these businesses benefit from market leadership, financial strength, good management and their adaptability in challenging times. These are attributes that are evident in the portfolio’s companies and give Walter Scott confidence in their ability to deliver strong returns over time

Performance Commentary - February 28, 2023

• The Fund returned 1.72%, net of fees, in February 2023, compared with a return for the Benchmark of 2.09%, with ongoing uncertainty over the future path of inflation and interest rates challenging investor sentiment.

• The largest sector drivers of the market’s positive result in February included IT, Industrials, Financials and Consumer Discretionary. For the Fund, holdings in IT, including Adobe and Cognex, and holdings in Financials, including AIA Group and Prudential, were the largest relative sector detractors; these were partially offset by holdings in Health Care, led by West Pharmaceutical Services and Novo Nordisk, and holdings in Materials, namely Linde.

• During the month, Walter Scott completed the initial purchases of Lonza Group and O’Reilly Automotive, and the final sale of Johnson & Johnson. Lonza is the global leader in the contract development and manufacturing organisation (CDMO) industry, which provides outsourcing services to the global pharmaceutical industry, most importantly manufacturing services for therapeutic drugs. Market growth and increased outsourcing should support double-digit industry growth for years to come. O’Reilly Automotive was purchased due to its resilient qualities, evidenced by 30 years of consecutive comparable sales growth. O’Reilly demonstrated strong share gains throughout the pandemic and momentum continued into 2022. The business is well-placed to continue consolidating a highly fragmented market whilst returning significant cash to shareholders. Johnson & Johnson is facing multiple headwinds, including a significant ongoing litigation challenge relating to its talcum powder-based products. There is also a more uncertain outlook for the company’s pharmaceutical division, where several products are past, or nearing, key patent expiry.

• As always, Walter Scott are focused on analysing and assessing how portfolio companies are navigating the various hurdles or indeed seizing the opportunities presented by these volatile times. Although in some cases they have not been immune from demand contraction or cost pressures, looking through the recent slew of earnings results, many have continued to show resilience and indeed growth. Thanks to their market-leadership, financial strength, pricing power and an ability to adapt to the vagaries of economic cycles, the companies the Fund holds remain well positioned to deliver strong earnings growth over the long term.

Performance Commentary - December 31, 2022

The Fund returned -3.55%, net of fees, in December 2022, compared with a return for the Benchmark of -5.19%, with investor concerns growing about the economic outlook for next year as central banks cautioned that a longed-for ‘pivot’ in monetary policy would not be forthcoming any time soon.

The IT and Consumer Discretionary sectors led the market lower in a month without a positive sector contributor. For the Fund, holdings in Consumer Discretionary, including NIKE, Compass Group and Inditex, and in Health Care, such as Novo Nordisk and Stryker Corporation, were the largest relative sector contributors, while holdings in Communication Services, namely Alphabet and The Walt Disney Company, were again the largest relative detractor. During the month, Walter Scott completed the final sale of Colgate-Palmolive, with the company facing cost pressures that have diminished its earnings power, amid strong competition for capital in the portfolio from other businesses with superior fundamental outlooks.

Several portfolio companies have had to navigate their way through a challenging operational environment; however, their inherent strengths are starting to come to the fore. News that NIKE was making progress on clearing its elevated inventory levels was well received by investors. While the backlog remains high — up 43% compared to a year ago — it appears that the peak has passed. Management expects levels to normalise in the months ahead, although gross margins will be squeezed while this happens. Spanish-listed fashion retailer Inditex has shown more than resilience in the face of shrinking consumer wallets, with sales up 20% in constant currency terms in the first nine months of the year. Furthermore, management reported that business conditions since have remained strong. Growth is predominantly coming from recovery in physical store sales in the wake of their post-pandemic reopening, but online sales are also up on prior year levels.

Predicting economic and market vagaries forms no part of Walter Scott’s investment process. In these turbulent times, it is all the more important the investment team ‘sticks to its knitting’ as they seek out the world’s great businesses that they believe can deliver strong earnings over time. That earnings generation, irrespective of economic and market volatility, will be the driver of portfolio returns.

Performance Commentary - November 30, 2022

The Fund returned 7.46%, net of fees, in November 2022, compared with a return for the Benchmark of 5.43%, with leading companies showing operational resilience despite economies remaining under pressure, and investors increasingly confident that an end game on rising interest rates may be in sight.

The Energy sector was the sole market detractor in November, as Materials and Financials led the index higher. Holdings in Consumer Discretionary, including LVMH, Nike and Inditex, and in IT, including Taiwan Semiconductor, Microsoft and Texas Instruments, were the largest relative sector contributors for the Fund, while the main relative detractor was holdings in Communication Services, namely The Walt Disney Company. There were no initial purchases or final sales within the portfolio during the month.

It was a busy month on the road for the Walter Scott Research team, with visits to the US, the Nordic countries, South Africa, Australia, New Zealand, Spain, Turkey and London, speaking to the management teams of companies held and potential portfolio candidates. Walter Scott met with CFO of Finnish elevator and escalator company Kone at their headquarters just outside Helsinki. This global business has a leading position in the Asia Pacific and Chinese markets, and the lockdowns and real estate sector downturn in China have been unwelcome headwinds of late. However major elements of Kone’s business are still performing well, most notably servicing and modernisation, and the company is also benefiting from the adoption of digital services (elevator analytics and smart building technology). Management has been flagging for a long time that new installations in China would eventually slow and that servicing and modernising the existing installed base would grow in importance. That is proving to be the case, and momentum for now is extremely strong.

The ‘Santa’ rally has started early this year. However, it remains to be seen to what extent equities have discounted an economic downturn and a tighter monetary environment. Walter Scott will stick to the rigour and consistency of their investment approach, one which is based on bottom-up, fundamental analysis as they look to invest in businesses that are capable of compounding high levels of wealth generation over the long term.

Performance Commentary - October 31, 2022

The Fund returned 6.18%, net of fees, in October 2022, compared with a return for the Benchmark of 7.22%, as equity markets rallied on investor hopes that weaker growth, gradual supply chain improvements, and commodity price reversals will eventually bring an end to monetary tightening as the drivers of inflation wilt.

The IT and Health Care sectors were among the largest contributors to a strong month for the index. Holdings in Financials, including AIA Group and Prudential, and a lack of exposure to the Energy sector were the largest relative sector detractors for the Fund, while the main relative contributors were holdings in Consumer Discretionary, such as TJX Companies, Booking Holdings and LVMH, amongst others. During the month, Walter Scott completed the final sale of Fanuc, to provide funds for more compelling investment candidates.

Economic turbulence does not yet seem to have blunted indulgence too much, judging by LVMH’s excellent nine-month results which highlighted the resilience of luxury spending and the company’s pricing power. Luxury is not recession proof, but LVMH’s customer base enjoys a differentiated consumption profile compared to the general population. Sales growth was positive across all business divisions, with the all-important Fashion & Leather division (almost half of group sales) growing ahead of expectations. Geographically, Europe, the US and Japan witnessed robust local demand, with sales also helped by the recovery in international travel. While Asia was less buoyant, growth accelerated in the third quarter in response to an easing of pandemic-related restrictions. Mainland China saw ‘‘flattish’’ year-on-year growth, with management expecting trends to recover ‘‘soon’’.

Markets will continue to ponder the scale and extent of the gathering downturn. Notwithstanding the operational resilience many leading companies have displayed so far, potentially stiffer tests lie ahead, and some may experience earnings volatility. By virtue of their market-leadership, financial and competitive strengths, and management teams experienced in navigating through cycles, Walter Scott remains confident in the ability of portfolio companies to deliver excellent returns over the long term.

Performance Commentary - September 30, 2022

• The Fund returned -8.10% in September 2022, compared with a return for the Benchmark of -8.91%, with equity markets facing a turbulent month as concerns about inflation, higher interest rates and a tilt towards recession in Europe preyed on investor sentiment.

• Another monthly fall for the index in September was driven by the IT and Industrials sectors, with Health Care the sole positive contributor. The Fund’s holdings in Industrials, including Experian, SGS, and Kone, and an underweight to Real Estate were the largest relative sector contributors. The main relative detractors, meanwhile, were holdings in Financials, namely AIA Group, and an underweight to the sector. There were no initial purchases or final sales within the portfolio during the month.

• ‘‘Good in good times, but better in not so good times’’. So said Oscar Garcia Maceiras, CEO of Spanish-based retailer Inditex in a conference call after the company’s excellent first-half results which saw sales up 25% (including an impressive 16% in the second quarter), and operating profit rise 44%. Reflecting on the current environment, he stated the concerns about macro conditions and consumer behaviour are understandable, but history suggests that macro conditions are not a good proxy for Inditex’s results. Discretionary spending is clearly under pressure, particularly in Europe, so Inditex is competing for a smaller consumer wallet against peers but also against non-apparel spending alternatives. Growth in the first half of the year was driven by a rebound in traffic in physical stores. Online sales were roughly flat in the period. In the post-period trading update sales strength continued, so in that context management still believes there is the potential for strong sales in the second half of the year. In some markets Inditex has seen some trading down from consumers from higher price points into Inditex stores, but in general there has been no significant change in consumer behaviour.

• The coming months will test the mettle of many companies as the full extent of the downturn unfolds. Balance sheet strength, a high margin cushion, a market-leading position, the ability to offer a differentiated product or service, pricing power, good cash flow generation, and management teams experienced in navigating through cycles and crises are hallmarks of the companies held in the portfolio. They are attributes which investors are increasingly likely to focus on in a fraught market and economic environment.

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