Walter Scott Global Equity (MAQ0410AU) Report & Performance

What is the Walter Scott Global Equity fund?

Walter Scott Global Equity 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). 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. Portfolio construction is notably benchmark unaware (relative to most global equity managers reviewed by Lonsec). Walter Scott targets absolute returns (in contrast to benchmark relative, most common in the Lonsec peer group) through a concentrated portfolio of 40-60 stocks. Lonsec notes that Walter Scott s approach typically leads to a portfolio with a mid to large-cap growth bias and low turnover.

Growth of $1000 Investment Over Time

Performance Report

Peer Comparison Report

Peer Comparison Report

Latest News & Updates For Walter Scott Global Equity

Walter Scott Global Equity Fund Commentary September 30, 2023

• The Fund returned -5.05%, net of fees, in September 2023, compared with a return for the Benchmark of -4.01%, with uncertainty and volatility rising across equity markets during the month.

• Nearly all sectors, with the exception of Energy, moved lower in September in unhedged terms; IT being the largest detractors to index returns. For the Fund, the largest relative sector contributors included holdings in Consumer Staples, such as Costco and Couche-Tard, and in Consumer Discretionary, namely Booking Holdings. Relative detractors included underweight positioning and holdings in Financials, such as AIA Group and Prudential, and holdings within Health Care, including Lonza and Edwards Lifesciences. There were no initial purchases or final sales within the portfolio during the month.

• Whilst Hong Kong today might not be firing on all cylinders, reflecting China’s muted post-Covid recovery, looking beyond the next couple of years there is a lot of optimism. Hong Kong sits at the nexus of a number of the Chinese government’s long-term projects: renminbi internationalisation, the Greater Bay Area and the Belt and Road initiative. Each represents a huge opportunity for Hong Kong over the coming decades. That optimism was also a common thread in Walter Scott’s conversations with company executives. Having met with senior leaders from Prudential and AIA Group, amongst others, the tone across the varied businesses was positive. Prudential and AIA both conveyed an upbeat outlook, with AIA noting that economic uncertainty in China has been beneficial as cash that would have been previously funnelled into property investment is directed towards its savings products. Similarly, Prudential outlined a significant market opportunity.

• The economic outlook remains uncertain in much of the world. In the most recent earnings season, there were repeated references to customers delaying purchasing decisions and stalling investment. But Walter Scott’s research trips during September were a reassuring reminder of the longer-term opportunities open to the very best companies around the world. Companies not only with market leadership and deep financial pockets today, but with the ambition and strategy to seize those opportunities in China, SouthEast Asia and elsewhere in the future.

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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 EquityMAQ0410AUManaged FundsForeign EquityLarge GrowthForeign Equity - Large Growth IndexDeveloped -World Index4.32 BN1.28%0.00%0.26%

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-2.12%0.29%15.51%6.67%9.39%9.47%12.44%10.54%-4.29%-20%-20.25%

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 EquityForeign Equity - Large Growth Index-6.12%-0.29%NA%NA%NA%0.884.35%4.78%0.910.9

Product Details

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

Product Due Diligence

What is Walter Scott Global Equity

Walter Scott Global Equity is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - Large Growth 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 has Assets Under Management of 4.32 BN with a management fee of 1.28%, a performance fee of 0.00% and a buy/sell spread fee of 0.26%.

How has the investment product performed recently?

The recent investment performance of the investment product shows that the Walter Scott Global Equity has returned -2.12% in the last month. The previous three years have returned 6.67% annualised and 10.54% each year since inception, which is when the Walter Scott Global Equity 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 first started, the Sharpe ratio is NA with an annualised volatility of 10.54%. The maximum drawdown of the investment product in the last 12 months is -4.29% and -20.25% 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 has a 12-month excess return when compared to the Foreign Equity - Large Growth Index of -6.12% and -0.29% 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 has produced Alpha over the Foreign Equity - Large Growth 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 Growth Index category, you can click here for the Peer Investment Report.

What level of diversification will Walter Scott Global Equity provide?

Walter Scott Global Equity has a correlation coefficient of 0.9 and a beta of 0.88 when compared to the Foreign Equity - Large Growth 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 and its peer investments, you can click here for the Peer Investment Report.

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

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

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

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

Has the Walter Scott Global Equity 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?

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

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

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

Comments from SMSF Mates

SMSF Mate does not receive commissions or kickbacks from the Walter Scott Global Equity. 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 - 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.

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 - May 31, 2023

The Fund returned 0.83%, net of fees, in May 2023, compared with a return for the Benchmark of 1.18%, with equity markets remaining volatile in the face of data which continues to paint a mixed picture of global economic health.

The IT sector was the main driver of positive index returns in May, with most other sectors, led by Energy, Consumer Staples and Financials, detracting. The largest relative sector detractors for the Fund included holdings in Consumer Discretionary, including NIKE and LVMH, partially offset by a lack of exposure to the Energy sector and holdings in Materials, namely Shin-Etsu Chemical. There were no initial purchases or final sales within the portfolio during the month.

Amidst the swirl of global macroeconomic and political currents, it remains the case that across the world many leading companies are getting on with business. The results season has shown how many have adapted and thrived, with leading companies able to tap into growth despite the broader economic environment. The pressure on consumer wallets does not seem to have crimped the appetite for travel, for example. Judging by Booking Holdings’ strong set of quarterly results, demand remains robust, with few signs of a slowdown on the horizon. And despite the significant rise in hotel room rates relative to 2019, there is nothing to suggest that customers are trading down to lower-star hotels. The booking ‘window’ – the time between the date of booking and the date of travel – lengthened more than expected and is now longer than it was pre-pandemic. This meant overall room nights booked came in ahead of expectations at 38% year-on-year. Compared with the first quarter of pre-pandemic 2019, room nights grew 26%. The only slight cloud was a lower margin relative to 2019 (due to higher payment processing) although this should start to trend up from here.

Predictions of a mild global economic slowdown have been baked into the equity market psyche, but there remains scope for volatility. The pace of inflation is slowing, but it remains high. It continues to chip away at incomes and for now central banks are sticking to their tightening mantra. A weaker demand environment and higher interest rates will continue to expose vulnerable, highly geared business models, and emphasises the importance of financial strength and market leadership.

Performance Commentary - April 30, 2023

Performance summary

• The Fund returned 2.47%, net of fees, in April 2023, compared with a return for the Benchmark of 3.16%; the gains in global equities occurred against a backdrop of renewed unease over the durability of growth, with the economic outlook for the US in particular under the spotlight.

• All market sectors advanced in April, with Health Care, Financials and Consumer Staples making the largest contributions. For the Fund, holdings in IT, led by TSMC, Texas Instruments and Keyence, were the largest relative sector detractors, partially offset by holdings in Health Care, such as Intuitive Surgical and Roche, and in Consumer Discretionary, including LVMH and Compass Group. Walter Scott also completed the initial purchase of ODFL, a leading less-than-truckload carrier in the US, whose key competitive advantage is its strong pay-for-performance culture, superb real-estate network and laser focus on service excellence.

• A key attribute of the companies Walter Scott holds is their ability to position for the future. They are leading brands with strong balance sheets, healthy cash flows, and experienced management teams that can seize opportunities. This month, the market responded positively to L’Oréal’s purchase of the luxury personal hygiene brand Aesop. At US$2.5 billion, the acquisition is the cosmetic group’s largest and gives it access to an area of the market where it has only limited exposure at present. Whilst Aesop is more exposed to physical retailing than most of L’Oréal’s portfolio, management has experience of this format through the Kiehl’s brand. L’Oréal has a good track record of acquiring solid brands and scaling them globally. L’Oréal saw solid 13% like-for-like growth in the first quarter, with all areas growing strongly with the exception of China.

• So far this year, markets have maintained a positive tone in the belief that a severe economic downturn can be avoided and that an end to monetary tightening might be in sight. A more marked deterioration of growth and/or high-for-longer interest rates would clearly dampen that sanguine outlook. Walter Scott’s focus remains on how portfolio companies are meeting current challenges and positioning themselves for future growth.

Performance Commentary - March 31, 2023

The Fund returned 6.83%, net of fees, in March 2023, compared with a return for the Benchmark of 3.88%, with the demise of Silicon Valley Bank (SVB) spreading fears of contagion in the banking sector and resulting in a volatile month for global equity markets.

Financials were the sole noteworthy sector detractor from market returns in March, with particularly positive returns for IT, Communication Services, Health Care and Consumer Discretionary. For the Fund, an underweight to Financials and holdings in the sector, namely Mastercard (recently re-classified from the GICS IT sector), as well as holdings in Health Care, led by Novo Nordisk and Intuitive Surgical, were the largest relative sector contributors. These were partially offset by an underweight to Communication Services. During the month, Walter Scott completed the initial purchase of Costco Wholesale, the global leader in membership-only warehouse clubs with a recurring and highly predictable earnings profile, as well as the final sale of SGS, to provide a source of funds for new investment ideas.

With the benefit of a long-term investment horizon, Walter Scott gets to know how businesses work and how they are steered by management as they go through various cycles or execute strategies. This month, the investment team had an update from Kevin Lobo, CEO of medical device maker Stryker Corporation for the past 10 years. During his tenure, the company has pursued the acceleration of organic revenue growth while building a leadership position in several markets through M&A. The company is now well placed, having a strong portfolio of products with no more competitive gaps to fill. ‘‘I do not have to buy anything’’, he declared. The market environment is favourable given the backlog of procedures created by Covid and a reduction of bottlenecks in the form of nursing and component shortages. As a result, Stryker is expected to maintain its impressive revenue growth which will be tilted towards organic revenues with only modest contribution from bolt-on M&A. This, in Walter Scott’s view, should result in lower financial gearing and improving returns and margins.

The events of March have provided a cautionary tale of the unintended consequences of monetary tightening. It remains to be seen if there is any further spill-over from the SVB saga, but higher interest rates will continue to expose frail business models that have binged on debt. The macroeconomic backdrop remains challenging with inflation still squeezing incomes, although so far, consumer expenditure is proving resilient. Whatever the market direction, Walter Scott’s investment focus remains on investing in marketleading companies with strong balance sheets and long, resilient growth runways.

Performance Commentary - January 31, 2023

Performance summary

• The Fund returned 2.87%, net of fees, in January 2023, compared with a return for the Benchmark of 2.97%, with equity markets recording a positive start to the year despite simmering inflation and rate hike concerns.
• On a sector basis, the largest contributions to the positive market return included IT, Consumer Discretionary, and Financials, while Health Care notably struggled. For the Fund, holdings in IT, led by Automatic Data Processing and Paychex, and an overweight to Health Care were the largest relative sector detractors, while holdings in Consumer Staples, namely L’Oréal, and a lack of exposure to the Energy and Utilities sectors were the largest relative contributors. There were no initial purchases or final sales within the portfolio during the month.
• Keyence, one of the Fund’s top individual contributors in January, is the world’s leading supplier of sensors and measuring instruments mainly used in factory automation. Shares in the Japanese company have performed strongly over the last ten years, but last year reflected the worldwide valuation compression in growth stocks from which Japan was not immune. The company had a better-than-expected first half in its current fiscal year, with 25% organic sales growth and 15% organic operating profit growth, as China rebounded from a lockdown-related lull in the first quarter. While management noted a more uncertain macro environment and some weakness in smartphone customers, they reported that overall, the business was showing resilience. Keyence has an impressive track record at growing its revenues, with a compound annual growth rate of 14% over the last 30 years. Walter Scott believes there is significant opportunity for further penetration of automation solutions both in Japan and overseas markets. This opportunity, coupled with Keyence’s outstanding profitability metrics, should result in exceptional levels of internal wealth creation.
• Walter Scott’s positive view on the Japanese companies held in the portfolio, including Keyence as well as SMC Corporation and Shin-Etsu Chemical, derives more from a high level of conviction based on bottom-up fundamentals than from hopes about economic transformation in the country. They are financially strong businesses that compete and thrive on a global stage, with long track records of delivering strong returns over time.

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