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ACPI Equity Alpha Fund - News
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ACPI Equity Alpha comment - Dec 11
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Monday, 19 March 2012
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Fund Manager Comment
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Equity markets recovered well from their intra-month lows during the final two weeks of December to finish the year on a relatively somber note and capping off a tumultuous year for risk assets. Markets were reasonably encouraged by the EU's, "fiscal compact" and by the ECB's support to the banking sector via longer term funding windows and looser collateral requirements. Although near term stresses have eased slightly, a heavy refinancing schedule is poised to dominate market sentiment with Italy alone needing to refinance $428bln in 2012.The MSCI World TR Index finished -6bps for the month with the US (S&P 500 TR Index + 1%) outperforming most other major market indices; UK (FTSE 100 + 0.8%), Europe (+0.8%) and Japan (TOPIX +0.1%) and leaving the MSCI World TR Index-5.5% for 2011 as a whole. Assessing the year in summary, despite high correlation and volatility, equity dispersion at the regional level and style basis was significant with the US (S&P 500 TR Index +2.1%) outperforming the UK (FTSE 100 -3.5%), Europe (-12.5%) and Japan (TOPIX -17%). Although they started the year on a positive note, Emerging Market equities (-18.4%) fell sharply as inflationary fears, combined with the potential fallout from the euro zone crisis, conspired to unnerve investor sentiment. Stylistically, defensives finished well ahead of cyclicals with the US Utilities and Consumer Staples sectors +14.8% and +10.5% respectively vs.-16.2% for the Morgan Stanley Cyclical Index. Value struggled throughout the year, weighed down by a disappointing year for the financials sector (-18.4%) and finished broadly flat (Russell 1,000 Value TR Index +0.4%), whereas Growth (Russell 1,000 Growth TR Index +2.6%) finished mildly positive. Yet outside of these styles, "quality" materially outperformed as investors sought the relative safety of well-capitalised, high quality global franchises. Large cap equities (S&P 500 TR Index +2.1%) also outperformed smaller cap peers (Russell 2000 TR Index-5.4%). Bonds finished the year on a positive note with the Citi WGBI +0.8%, Citi BIG Corporate Index +2.1% and the iBox High Yield Index +3.7%.
The Equity Alpha Fund finished the month +0.2%, outperforming the benchmark's return of -6bps. This brings the Fund's year-to-date performance to -8.7%, against -5.6% for the benchmark.
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ACPI Equity Alpha comment - Sep 11
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Friday, 23 December 2011
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Fund Manager Comment
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Fund Commentary
The sell-off in risk assets continued in September, marking the fifth negative month in a row for the MSCI World Equity TRI index (-8.64%). Market participants continued to focus on the unfolding sovereign debt crisis plaguing the European periphery and a weaker outlook for the global economy added to the mix. Foreign exchange markets witnessed significant volatility as the US Federal reserve resisted in embarking upon a new round of quantitative easing measures which in turn prompted a stronger US Dollar against most major crosses and especially against emerging market currencies. World government bonds benefited through out the month and the Citi World Government Bond Index finished -1.9% primarily down to currency movements.
The Equity Alpha Fund finished the month -6%, outperforming the benchmark's return of -8.6%. This brings the Fund's year-to-date performance to -10.7%, against -12.2% for the benchmark.
Manager Performance
Correlation amongst both sectors and stocks reached its highest in more than 20 years during September according to data from Goldman Sachs. The 3-month trailing daily return correlation among the ten major sectors hit 0.94, the highest in more than 20 years, more than two standard deviations above the ten-year average and a level approached only once before, during the aftermath of the financial crisis in February 2009 (0.91). However, relative performance at the underlying single manager level was exceptional despite the high levels of correlation and volatility. Once again it was the general defensive positioning running through the equity book, which contributed to relative performance as the outlook for cyclicals worsened following exceptionally weak global economic data. The economic outlook for China worsened over the month, which subsequently impacted the basic materials sector and the consensual long trade in luxury branded companies. Despite the "brand" theme running throughout our equity exposure, manager exposure to this niche area of the market remains minimal due to valuation concerns. In the US, the Morgan Stanley Cyclical Index finished -13.4% against the S&P500 Consumer Staples Index which finished -3.7%. Our global managers finished well ahead of their benchmark with the Morgan Stanley Global Brands Fund (-5.5%), Majedie Global Focus Fund (-4.1%) and the Veritas Global Equity Income Fund (-8%). In the UK, the Cazenove UK Equity Fund (-2.7%) finished +230bps ahead of its benchmark with the manager;s overweight bias towards the Health Care and Tobacco sectors materially outperforming cyclicals; Mining (-19.6%) and Financials (-7.4%) to which the manager maintains an underweight bias. Performance was also aided by stock specific holdings amongst the mid-cap areas of the market.
Outlook
Despite the interim market volatility little changed at the portfolio level, we continue to believe that the relative valuation call within risk assets today remains skewed towards specific areas of the equity market. Defensive-growth equities, to which our core managers maintain overweight exposure remain available today with moderate earnings growth expectations of 8-9% for 2012 in addition to providing a dividend yield of 3-4% culminating in a total return of +11%. This is a highly attractive proposition against both corporate and government bonds at present.
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ACPI Equity Alpha comment - Jun11
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Monday, 12 September 2011
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Fund Manager Comment
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Markets remained volatile and at times irrational throughout June as markets reacted negatively to a number of weak economic data points in the US. The US economy added just 54,000 new jobs in May, confirming fears that the recovery has hit a soft patch as the unemployment rate ticked up to 9.1%. Non-farm payrolls rose far less than the 165,000 which economists had expected and were well below the average 220,000 gain in the previous three months. In addition, the Greek sovereign debt crisis almost led to the Eurozone's first sovereign default before austerity measures were passed in the Greek parliament which in turn prompted a rally in risk assets during the final week of the month. At its low the MSCI World Equity TR Index was -5.7% before finishing -1.6% and the S&P500 Index also rallied +4.1% in the final 4 days of the month. At the sector level, although the final performance numbers show little by way of dispersion, this masks the significant levels of intra month dispersion between cyclicals and defensives as cyclicals rallied sharply through month end, the risk trade was back on! The credit complex also remained volatile throughout the month, especially within the higher beta segments of the market, notably within financials where US senior paper returned -0.8% and subordinated paper returned - 1.5%. High Yield credit markets were also weak with Europe finishing -1.4% and the US -1.2%. Sovereign debt markets also finished in negative territory with US Treasuries -0.3%, UK Gilts -0.6% and Bunds -0.2%. The Citi World Government Bond Index finished the month +0.2% which was mainly driven by a stronger Japanese Yen. After recovering all of our relative year-to-date underperformance through mid-month, the ACPI Equity Alpha Fund finished -1.6% and in line with the benchmark for June.
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ACPI Equity Alpha comment - Mar 11
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Wednesday, 25 May 2011
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Fund Manager Comment
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Global equity markets recovered from their intra month lows to post new highs since the 2008 financial crisis as a raft of strong corporate earnings releases and an accommodative Fed policy propelled risk appetite towards month end. However, despite recovering to some extent from their intra-month lows, cyclicals continued to lose ground in April over their defensive peers which led to decent return dispersion throughout. In the US, Standard & Poor's revised its outlook on the long-term rating of US sovereign debt from stable to negative, while reiterating its AAA rating and A-1+ long-term and short-term ratings. The negative view appears to be based primarily on S&P's perception of a lack of urgency regarding fiscal reform and the possibility that medium to long-term reform might not be addressed and implemented by 2013. Despite this, government bonds performed well, no doubt in part down to the continued 'QE2' efforts from the Federal Reserve. Performance within the developed equity markets was strong with many major indices reaching new highs since the 2008 financial crisis, with the US (+3%), Europe (+4%) and the UK (+3%). Investor rotation out of Japan (-2%) and into Emerging Markets (+3.1%) continued throughout the month. The MSCI World Index finished +4.2% and the Citi World Government Bond Index finished the month +3.2%. The ACPI Equity Alpha Fund finished +4.5% outperforming the benchmark for the month.
Manager Performance
Performance at the single manager level was good as 6 out of the Fund's 11 active equity managers outperformed their respective benchmark. Performance from the Morgan Stanley Global Brands Fund (+6.7%) and the Majedie Global Focus Fund (+4.4%) was exceptional as both managers benefited through their overweight exposure to the consumer staples sector. On a similar theme, the Yacktman US Equity Fund outperformed its benchmark by +60bps. Within the consumer staples sector a raft of leading global blue-chips announced their earnings numbers for the first quarter with the majority beating analysts' expectations with strong growth from developing markets and increased pricing power generally offsetting rising cost pressures. Despite announcing the pending departure of their talismanic CEO during April, the household goods and personal care manufacturer Reckitt Benckiser Plc announced a solid set of numbers for Q1. The company beat market expectations on a number of different metrics; reporting 14% growth in first quarter sales, flat gross margins of 59.5% and most importantly a 20bps increase in operating margins to 23% which the market had expected to come in weaker due to higher input costs during the period. Also within the sector, PepsiCo Inc. reported first quarter numbers which were well ahead of market expectations helping to drive the stock to a new 52-week high. The company reported a 27% gain in first quarter sales with revenues and earnings per share both beating analysts' expectations.
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ACPI Equity Alpha comment - Sep 10
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Tuesday, 9 November 2010
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Fund Manager Comment
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It was the strongest September performance for US equity markets since 1939 as the risk trade was back on following August's decline. Markets became fixated on the prospects for further monetary stimulus packages during the month as weak economic data compounded fears of an economic double-dip. Policymakers took steps to indicate that they would use the tools at their disposal to help stimulate growth. In the US, the Federal Reserve put the market on notice that it is considering further asset purchases, or quantitative easing which has recently been dubbed 'QE2'. This had a material impact on risk assets, with equities, credit and commodities all rising whilst the USD weakened. The MSCI World Index returned +9.3% and the Citi World Government Bond Index finished the month +2.4%, primarily through USD weakness. The ACPI Equity Alpha Fund returned +8.2%, impacted on a relative basis by poor performance from the majority of the fund's active global managers and the fund's overweight exposure towards Japan.
Manager Performance
In the US, 30 constituents of the S&P500 Index made new all time highs during the third quarter with the majority having one key factor in common; increasing revenue growth primarily from overseas operations. Both the Goldman Sachs US Equity Portfolio and the Fidelity America Fund beat the S&P500 Index over the month as they finished 70bps and 60bps ahead of the index respectively. The Goldman Sachs US Equity Portfolio's overweight exposure to Apple Inc was a contributor to performance as it finished +16.7% on the month. In the UK, the Cazenove UK Equity Fund outperformed the FTSE All-Share Index by 110bps for September as it finished +7.7%. Despite a strong performance for UK equities, the dispersion of returns was wide with high beta industrial cyclical or growth sectors leading the way. The electronic and auto sectors both finished +10%, the industrial metals sector rose 7.8%, with the mining sector +5.3%. From the growth perspective, high end consumer discretionary stocks surged with Burberry Plc rising over 15% to trade on multiples in excess of 25x current year earnings. Defensive sectors fared relatively poorly, with those at the bottom of the performance table, utilities and mobile telecoms, failing to make a positive absolute return. The fund benefited through stock selection with Howden Joinery Plc being the strongest contributor to the fund's performance as the market became more confident about the important autumn trading period. An active overweight position in Babcock Plc also contributed strongly following results which were ahead of expectations. From a global perspective, 3 of the fund's 4 active managers underperformed their respective benchmark with the ACPI Focused Equity Fund, Morgan Stanley Global Brands Fund and the Orbis Global Equity Fund finishing 23bps, 73bps and 100bps behind respectively. In Japan, the Yen was volatile as the Japanese Ministry of Finance intervened in a bid to depreciate the currency. The recent appreciation of the Yen has impacted the Japanese equity market as it threatens to undermine corporate margins and potentially destabilise a so-far muted economic recovery which has largely been dependent on export-driven growth. The Equity Alpha Fund's exposure to Japan was the main detractor from performance over the month as the GLG Japan CoreAlpha Fund finished +0.8%, against +9.3% for world equities.
Outlook
With debt concerns surrounding peripheral Eurozone economies persisting, we thought it would be useful to reflect on how one of our core European managers is viewing opportunities within Europe at present. The manager of the Cazenove Europe ex-UK Fund adopts a 'business cycle' approach to equity market investing, in the assumption that stocks are driven depending on where we are in the business cycle. The manager believes that European equity markets are now focused on identifying the next area of market leadership as the economy moves on from the initial recovery. The manager estimates that between 70-80% of recent GDP growth has been driven solely by the inventory restocking cycle and government stimulus efforts. However, the outlook from here remains difficult as there remains minimal evidence of a pickup in end demand, which is rare for a normal investment cycle. The key question market participants now have to contend with is what sort of expansion are we going to have? European earnings momentum has begun to moderate recently pointing to a slowdown in earnings revisions, however crucially this is not yet negative. The manager's core view, which was initiated in July, is that when the pace of change slackens investors get a mixed picture in future sector leadership. The fund now moves into the final quarter of the year with a lower beta portfolio than would be typical at this stage in the cycle due to the value the manager believes is currently exhibited in low beta sectors, such as pharmaceuticals and telecommunications. In a normal cycle (2003-2007), sector betas generally converge as investors become more confident that all sectors are doing well, however this is not the case in this cycle and with European equities currently trading on approximately 10x trend P/E multiples, the market is believing and pricing in the likelihood that the trend rate of growth going forward within the deficit economies is likely to be lower. Over the short term, the manager's focus remains on the new order component of the ISM indicator along with the Ifo survey. A European ISM number in the low 50's, when new orders begin to decelerate, will likely result in the market being driven by value and growth defensives rather than cyclical industrials and deep cyclicals. The manager's bias going into 2011 is to remain with a structural overweight exposure to Western consumer-related companies with major overseas top-line growth from Emerging Markets. The manager believes that Emerging Markets are now moving away from an export-led growth story, which has largely supported cyclical sectors such as industrials, chemicals and materials, to a consumption led growth story. Companies such as Heineken, Publicis, Danone account for the bulk of this current exposure with smaller holdings in L'oreal, Anheuser-Busch InBev and Oriflame gradually being increased. It is the manager's expectation that this theme will account for 25% of the portfolio through the beginning of 2011.
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Fund Name Changed
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Wednesday, 25 August 2010
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Official Announcement
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The TriAlpha Equity Alpha Fund will change it's name to ACPI Equity Alpha Fund, effective from 25 August 2010
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TriAlpha Equity Alpha comment - Jun 10
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Wednesday, 18 August 2010
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Fund Manager Comment
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Global equities finished in negative territory for June as the economic double dip debate weighed on investor sentiment. A recent mixture of weaker economic indicators has caused market participants to shun risk assets and seek relative safety in government bonds.
Performance dispersion by region was significant with the S&P500 Index finishing -5.23%. European equity markets fell by 5% early in the month before the market rose 12% to reach an intra-month high on the 21st June before economic double dip concerns meant that the FTSE Eurofirst 300 ex-UK Index finished +0.29% for the month. In the UK, the FTSE All-share Index finished -4.62%, impacted by the continued deterioration in BP's share price, -35% on the month, and significant weakness in the basic materials sector.
The MSCI World Index finished the month -3.43% and the Citi World Government Bond Index finished the month +1.72%. The ACPI Equity Alpha Fund finished the month -2.97%, slightly outperforming the benchmark and bringing the fund's year to date return to -9.94% against -9.84% for the benchmark.
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TriAlpha Equity Alpha comment - Sep 09
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Monday, 14 December 2009
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Fund Manager Comment
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Global equity markets were volatile during October against the background of the third quarter corporate earnings season. Despite an early rally, equities sold-off during the final week of the month, leading to the first negative month for the S&P 500 Index since February this year. The MSCI World Index finished the month -1.78% and the Citi World Government Bond Index finished the month +0.10%.
The Equity Alpha Fund finished the month -1.14%, bringing the fund's year to date performance to +22.24% against +22.68% for the MSCI World Index.
Manager Performance
Manager performance was relatively good on the month with 8 out of 11 active managers outperforming their respective benchmarks. Performance attribution from the fund's Global managers was mixed with both the Cantillon Global Equity Fund and the Sarasin CI Global Thematic Fund outperforming as a result of their defensive style skew. The Orbis Global Equity Fund and the TriAlpha Equity Yield Fund finished behind their benchmarks.
In the US, the Goldman Sachs US Equity Portfolio finished -1.68%, slightly ahead of the S&P 500 Index which finished -1.98%. The fund benefited from its overweight exposure towards the Healthcare sector and underweight exposure to the Industrials sector.
Our European managers delivered strong relative performance in October. Both the Cazenove Europe ex- UK Fund and the JOHCM Continental European Fund outperformed the market by +1.2% primarily driven by their underweight exposure towards the Basic Materials and Industrials sectors. In the UK, the Cazenove UK Equity Fund also finished 1% ahead of its benchmark, with performance attributable to the manager's overweight exposure to the Pharmaceutical and Consumer Staples sectors.
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TriAlpha Equity Alpha comment - Jun 09
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Thursday, 13 August 2009
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Fund Manager Comment
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Global equity markets paused for breath in June as investors put into perspective the recent strong gains made in global equities with the real economic data. Investor focus now turns to a busy Q2 reporting period during the month of July for US and European companies. In June, US consumer confidence unexpectedly slipped during the month, reflecting an unemployment rate that rose to 9.5%. US employers cut 467,000 jobs last month which means that over 6 million jobs have now been eliminated since the recession began in December 2007. The US jobless rate is now the highest since August 1983. The MSCI $ World Index finished the month -0.4% and the Citi World Government Bond Index finished the month +0.1%.
The Equity Alpha Fund finished the month +1.1%, outperforming the benchmark. Performance on the month was relatively strong across all underlying managers. It was another strong month for Technology related stocks which benefited the Orbis Global Equity Fund. From a regional perspective there was also strong relative performance from the Veritas Asia Fund and the Goldman Sachs US Equity Fund. The TriAlpha Equity Yield Fund also had a strong month due to its continued underweight in Financials and overweight positioning in the Healthcare and Technology sectors. Only two of the ten active underlying managers slightly underperformed during the month. These were the Cazenove Europe ex-UK Fund and the Cantillon Global Equity Fund. During July we expect to add an active Japan manager to replace the current index ETF. This Fund has a strong history of outperformance over the index from a team that has a high level of regional experience. We intend to comment in greater depth on this new manager in next month's commentary.
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TriAlpha Equity Alpha comment - Mar 09
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Thursday, 14 May 2009
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Fund Manager Comment
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Global Equity markets were savage throughout March. Markets witnessed a truly vicious bear market rally with the S&P 500 alone climbing +25% from its intra month low before profit taking towards month end. There was significant sector rotation as financials and cyclical sectors rallied during mid month, significantly outperforming defensives. From extremely oversold levels during the first week of March, markets rallied after the US Treasury Secretary Timothy Geithner unveiled plans to rid financial firms of toxic assets in addition to positive comments from two US banks regarding first quarter profitability. There were also a number of mergers announced during the month within the energy and pharmaceuticals sectors, tentative signs that some well capitalised businesses are taking advantage of the current market turmoil in order to strengthen their business franchises. The MSCI $ World Index finished the month +7.60% and the Citi World Government Bond Index finished the month +2.54%.
The Equity Alpha Fund finished the month +3.9%, underperforming the benchmark. Markets moved quickly during the month to price in a potential V shaped recovery in the global economy which prompted significant performance dispersion at the sector level. Defensive sectors were shunned by investors in favour of cyclicals. The S&P 500 Financials index finished the month +17% and the S&P 500 Materials index +15% on the month. Our underlying managers were not positioned sufficiently to capture this short term rally. Citigroup and JP Morgan said they had made money in the first two months of 2009 which prompted a broad stocks managers rally in global financial stocks. Long only managers, significantly underweight the sector for the past 12 months in combination with hedge funds closing short positions both contributed to this surge in sector volatility. The outlook for financials remains uncertain whilst loan delinquency rates continue to rise. This may prompt further equity dilution as financials continue to make provisions for write offs. Despite the equity market rally, corporate credit markets remained weak throughout March with the i-Traxx European investment grade index widening a further 13 bps to 193bps. With the upper segments of the corporate credit spectrum remaining so weak, one has to question the ability of the equity market rally to continue whilst the more senior tranches of the corporate capital structure remain so fragile.
Within the G20 group of nations, the total value of the announced government support is now equal to 28% of GDP. This is likely to have an impact on growth during the second half of 2009 but whether this uptick in growth is sustainable at this stage is highly questionable whilst the credit transmission mechanism remains dysfunctional and the Western consumer continues to retrench. According to research by Goldman Sachs, the decline in equity markets and house prices has wiped out $41 trillion of global wealth since the end of 2007, not only will this reduction in equity constrain banks' balance sheet liabilities for the foreseeable future, but it will also constrain consumption from the past key driver of global growth during the cycle, namely the Western consumer. The entire Western Banking system is also in the early stages of a significant overhaul. The clampdown on excessive lending and risky balance sheet models will undoubtedly lead to modest growth over time once the current crisis has been resolved. Therefore any economic recovery going forward is likely to be shallow with sub trend economic growth for a prolonged period of time whilst consumer balance sheets continue to strengthen and the deleveraging process continues. With this outlook in mind it is difficult at this stage to believe that the bear market rally witnessed in March is sustainable and for the recent outperformance from cyclical sectors to continue going forward.
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TriAlpha Equity Alpha comment - Sep 08
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Friday, 14 November 2008
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Fund Manager Comment
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September proved to be another very painful month across global stock markets and equity markets closed significantly lower over the month with the MSCI $ World Index losing 11.9%. Financial markets essentially seized up following the collapse of US investment broker Lehman Brothers and trading was characterised by extreme volatility on both the upside and the downside.
I think it is fair to say that across the board managers have completely misread the severity of events that have unfolded during the course of 2008 and focusing exclusively on company fundamentals has offered them no protection in the current environment.
While managers in the last few months have increasingly been raising cash, in some instances to levels as high as 40%, even this has not been sufficient to offer them any form of protection as the sell-off has been brutal and indiscriminate. We too raised cash in the fund to 10% a few months ago, but here again this has not been sufficient in terms of protecting the fund.
On the whole, fund activity has remained fairly low however we have taken the decision to redeem the Wyper Fund. We have been reducing our allocation to the fund as we have been uncomfortable with the manager's level of turnover and portfolio positioning and took the decision to redeem the fund completely. In the short term the proceeds are invested in a US Index fund as we wish to remain nimble and retain the flexibility to raise cash levels further if deemed appropriate.
At the stock level our underlying manager's remain committed to the positions in their fund and believe that the embedded value in their underlying portfolios to be at extreme levels. Taking as an example the Cambrian Fund, based on where the shares are currently trading and his 12 - 18 month price target he sees upside in excess of 90% in all but one of the positions currently held in the portfolio. In all the time that I have been invested in this fund the potential upside has never been as high.
Within the fund we continue to hold a 10% allocation to cash and on a look through basis cash in the fund is currently around 21%.
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TriAlpha Equity Alpha comment - Mar 08
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Thursday, 22 May 2008
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Fund Manager Comment
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Global equity markets experienced another volatile month. The MSCI $ World Index ended the month down 0.96%, however was down as much as 5% in the build up to the collapse of Bear Stearns. Investor confidence improved and equity markets rallied after the 17th of March when JP Morgan, backed by the US Federal Reserve, agreed to buy Bear Stearns and after the Fed cut rates and took other liquidity measures.
Since the latter half of last year, equity markets have tended to exhibit weaker performance in the first half of the month and recover strongly during the second half. Our experience with the performance of the Equity Alpha Fund during this time has been that the fund has generally started the months off quite strongly out performing the MSCI $ World Index, but has then generally struggled to keep pace with the market when the trend has reversed. As a consequence the fund was down 3.8% in March, having been ahead of the Index earlier in the month.
Performance in March was adversely affected by the fund's overweight positions in Asia and the Emerging Markets and, at the manager level, by weaker performance from the Wyper Hippocrates Fund. We recently met with George Wyper, manager of the Wyper Hippocrates Fund, and we maintain our positive outlook for the fund. We also remain comfortable with our bias to both Asia and EM from a regional allocation perspective.
Last month we commented on the change of management at the BDT Emerging Markets Fund. We have now reviewed this position and decided to sell it, in so doing reducing our direct exposure to Emerging Markets to 4.5%. For now we retain the proceeds in cash, resulting in a cash weighting at the fund level of around 3%.
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TriAlpha Equity Alpha comment - Dec 07
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Thursday, 3 April 2008
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Fund Manager Comment
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Equity markets remained weak in December with the MSCI $ World index closing with a 1.3% loss. Investors continued to be unsettled by poor housing data in the US and Europe, ongoing sub-prime related financial turmoil and crude oil hitting record levels. For the year the MSCI World Index ended up 9.0%. Against this backdrop the Equity Alpha Fund was down 0.2% for the month and ended the year up 9.0%. From a regional allocation perspective it was once again the year of Asian and Emerging Markets, with both these markets up 31% and 39% respectively. To this extent the fund benefited from our overweight position in both regions and additionally from our allocation to the CAM Fund, which has over 50% of its portfolio invested in Asia.
The region to avoid was Japan, which was down 4% in USD terms, returning the first negative year since markets turned in March 2003. Throughout most of the year we were underweight Japan, but as highlighted in last month's commentary we have been increasing our Japanese allocation and are now slightly overweight. From a fund selection perspective our strongest relative returns were by far and away our US managers which overall for the year out performed by 6%. This out performance was driven by strong performance from the Cambrian fund throughout the year - up 25% for the year vs 5.4% for the Index. In addition the inclusion of the Wyper fund at the start of Q4 resulted in our US manager selection out performing by 9% in Q4. The only region where our manager selection under performed significantly was in Europe where the manager's portfolio suffered a significant setback in the latter half of the year. We have experienced volatility of this nature in the Waverton fund before and so while we do not believe this is necessarily cause for concern we are considering the addition of a second fund in order to dampen the volatility. Our two Global Equity Funds ended up 3% ahead of the Index and what was particularly instructive was the extent to which the Cantillon Fund in particular with it's very defensively positioned portfolio protected the fund in November and December as the markets sold off.
Making the right regional allocations is always important but as we look ahead into 2008, making the call between cash and equities could be equally important. On balance however the underlying managers in the fund at this point remain reasonably optimistic and continue to view the current market as one of a mid cycle pause rather than a full blown recession. Also, from our own analysis, equity valuations look low - close to the lowest for 20 years on a forward looking basis. Looking at returns since markets turned in March 2003 the US remains the clear laggard with performance in USD terms of 96% since March 2003, compared to the Emerging Markets, which are up 420%. Much has been said of the gains in Asia and the Emerging Markets, however the other winner since 2003 has been Europe, which in USD terms is up 261% since March 2003. From a regional allocation perspective the fund is underweight US equities but not the USD as our Global Equity managers hedge their currency exposure back into USD. We are underweight Europe and will remain so in the short term. From a manager perspective, we will review our European allocation and reiterate that while cognisant of the Asian and Emerging Market remain comfortable with this position given the absolute return orientation of managers in this space.
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TriAlpha Equity Alpha comment - Sep 07
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Monday, 12 November 2007
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Fund Manager Comment
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The Equity Alpha fund was up 4.9% for the month, bringing the return for the year to date up to 10.8%, compared to the MSCI World Index which is up 11.8% year to date.
Global equities bounced back strongly in September with the MSCI $ World Index recording a net return of +4.8%, its best monthly return in just under three years. Of this 4.8% return, 3.5% came after the 18th September when the US Federal Reserve surprised the market with a 50bp cut in the Fed Funds rate as opposed to the expected 25bp rate cut. The Fed's actions encouraged the belief that the US was entering a reflationary environment and provided a strong tailwind for cyclical sectors.
As a consequence of the above the funds that performed strongly over the course of the month were those that hurt us in August as many of the stocks that had sold off rebounded strongly. Top performing funds included Coupland Cardiff Japan Alpha up 9%, Cambrian up 5.3% and the Waverton and Cam Funds both up around 4.5%.
We have this month redeemed our holding in the Vontobel US Value Fund. The proceeds have been invested in the Wyper Hippocrates Fund. The Hippocrates Fund is an all cap long only equity fund that seeks to achieve absolute returns over a long term time horizon. The fund invests principally in US stocks, but up to 25% may be held in foreign stocks. Their primary focus when researching companies is an emphasis on cash flows and how managers use these cash flows. The portfolio holds anywhere between 40 and 70 stocks with a concentration of between 21 - 45% in the top 5 to 10 names. Turnover in the top 10 names tends to be low with holding periods from 6 months to 6 years, while non core holdings typically have a shorter term investment horizon.
The fund has an inherent bias towards the financials and energy sectors that is predicated on the manager's experience and network of contacts. This exposure is however actively managed and is not out of keeping with the benchmark's exposure.
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TriAlpha Equity Alpha comment - Jun 07
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Thursday, 27 September 2007
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Fund Manager Comment
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Global equity markets declined in June on the back of a sharp rise in bond yields as investors once again became concerned that economic growth may keep inflation above desired levels and in so doing defer the previously anticipated rate cuts by the US Federal Reserve. The MSCI $ World Index was down 0.8% in USD terms and global bonds as measured by the Citigroup World Government Bond Index were down 0.6%. Against this backdrop the Equity Alpha Fund was down 0.6% but is up 9.8% year and remains ahead of the MSCI World Index, which is up 9.2%.
Looking at our underlying managers, in relative terms the stand out manager for the month was once again the Cambrian Fund, which was up 1.3% compared to the US, which was down 1.7%. Year to date the Cambrian Fund is up 19% compared to the S&P 500, which is up 7%. Our allocation to the Cambrian Fund remains at around 16% due to inflows being used to add to other regions. We will continue to adopt this approach rather than take profits and trim our allocation as we remain confident that the manager continues to trade actively around his core names, taking profits when stocks have had a strong run up and adding to positions on weakness.
In absolute terms our Asian and Emerging Markets funds were the strongest performers and were up 5.5% and 5.4% respectively.
Funds which hurt performance included the Waverton Continental European Fund, which was down 2.9%, however given the strong run earlier in the year of many of the stocks in the portfolio it was inevitable that these names would succumb to profit taking in any market sell off. Year to date the fund remains up 15% and ahead of the Index.
In terms of recent activity we have continued to add to our allocation in the CAM fund, taking the position up from an allocation of 4.5% to 9%. Similarly, our Japanese holding has also been increased from 9% to 10%. At a recent meeting with our Japanese manager he re-iterated that he remains up beat about the outlook for Japan and very bullish on the prospects for his portfolio. His portfolio continues to have a bias to real estate and stocks within the manufacturing sector, which he believes have an edge in terms of pricing power.
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TriAlpha Equity Alpha comment - Mar 07
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Monday, 28 May 2007
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Fund Manager Comment
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Global equity markets were volatile over the month, but ended the period with solid gains with the MSCI $ World Index (Net Return) up 1.8% in March. The equity market volatility stemmed mainly from the ongoing problems in the US sub-prime mortgage market, with 28 lenders in this specific field going bankrupt. Investors were primarily concerned that the US, and global, economies could ultimately be affected by the fallout from the subprime sector. However, while the risks are not immaterial, they appear to have been contained within the sector itself and are unlikely to precipitate a material deterioration in economic growth.
While economic forecasts have been trimmed slightly as the sub-prime meltdown unfolds, they still show healthy levels of growth. Against this volatile backdrop the Equity Alpha fund rose 1.4% in March. However, this number is not indicative of actual performance over the month. As mentioned in last month's commentary, a technical pricing factor had an approximately 60bp positive impact on February's NAV and has had a commensurately negative 60bp impact on this month's NAV. Overall, the fund returned 2.7% over the quarter compared with the MSCI $ World Index net return of 2.5%. In terms of our underlying funds we made a change to our Japanese manager, switching out of the JP Morgan Alpha Plus Fund into the Coupland Cardiff Japan Alpha Fund.
The CC Japan Alpha Fund will be managed by Jonathan Dobson, a highly experienced manager with whom we were originally invested in 2004 and 2005 while he was at JP Morgan. The fund will be a growth biased, high conviction fund with an overriding commitment to absolute return and the investment philosophy will favour fundamental, proprietary research. We also took the opportunity to raise the overall Japan weighting to 10% from 6.5%. This decision reflects both our current asset allocation stance in Japan and our confidence in Jonathan Dobson. Looking at the performance of our underlying funds, the Waverton Continental European Fund was the star performer, easily beating the benchmark with a return of over 5%.
The manager, Stuart Mitchell, has a relatively high weighting in the small and mid-cap sectors, both of which performed strongly in March as investors regained their risk appetite. Stand out stocks included long-term holding Unibet which rose 32% after the European Commission threatened to sue those countries blocking foreign sports betting companies from entering their domestic markets. Swedish clothes store chain RNB Retail Brands was also stronger, up 22% after reporting robust sales.
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TriAlpha Equity Alpha comment - Dec 06
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Tuesday, 13 March 2007
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Fund Manager Comment
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Global equity markets rose for a sixth consecutive month as investors appeared to conclude that the US Federal Reserve had completed its monetary tightening cycle. The MSCI $ World index rose 2.0% in December, contributing to another strong year for global equities. The Emerging Markets region enjoyed a 4.4% return in December while the US was the worst performer with a gain of only 1.1%. This modest performance from the US meant that for the first time in six months Japan was not the weakest major region. The fund ended the month up 2.3% compared to the MSCI World Index which was up 2.0%. This brings the return for the year to 13.6%, primarily achieved in the latter half of the year. At the end of July we highlighted the fact that, notwithstanding a difficult period for the fund, the managers' portfolios reflected considerable embedded value and this has been borne out by returns since then. Reviewing manager performance for the year our European, UK and Emerging Markets funds delivered the strongest absolute performances with returns in excess of 35%, whilst our Japanese fund was the weakest in both absolute and relative terms. One of the funds to have negatively impacted the Equity Alpha fund in the summer months was the Waverton European Fund which at one point lagged the index by 10%. However, the fund closed the year with a 39% gain and outperformed the index by 4%. This turnaround highlights the importance of a long term approach when evaluating managers and having confidence in their investment strategy when market conditions are temporarily unfavourable. We continue to review our managers in relation to the market environment. While we envisage no manager changes in the short term we will remain mindful of changes in the market environment and will reposition the fund accordingly. At this juncture Japan clearly stands out as a market that significantly lagged in 2006 and represents a region which may present superior opportunities in 2007. Having more than halved our allocation to the region during the course of 2006 from 15% of the equity allocation to 6%, we may look to rebuild this allocation in the coming months should market conditions improve sufficiently.
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TriAlpha Equity Alpha comment - Sep 06
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Tuesday, 28 November 2006
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Fund Manager Comment
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The fund was up 1.0% this month compared the MSCI World Index, which was up 1.2%. For the 12-month period ended September 2006 the fund is up 10.5% in USD terms. Managers continued to make good progress in September and the Cambrian Fund was up 2.7%, having now effectively eradicated the draw down incurred in June. Whilst there have been no manager changes this month we have implemented a significant change with respect to our asset allocation.
We continue to find excellent opportunities within equities overall and especially in US large caps where valuations have compressed. As a result we have decided to increase our exposure to the US. For much the same reason we have also increased our European weighting and this now makes our regional allocations more neutral when compared to the MSCI World index. Having adopted a significant bias towards the East (Asia/Japan/Emerging) for some time we now feel less confident about these markets relative to the US and Europe.
These allocations have been funded by a halving of our Japanese allocation from 15% to 7%. There are multiple reasons for this shift including relative profit momentum, valuation and our judgment of risk. From a manager perspective the US allocation has been added to our investment in the Vontobel US Value Fund as we believe their portfolio most closely reflects our view with respect to large cap quality growth stocks.
The weighting in the fund has now increased from around 12.5% to 20%. On the whole our managers remain constructive on their outlook for the markets in general and their portfolios in particular.
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TriAlpha Equity Alpha comment - Jun 06
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Wednesday, 16 August 2006
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Fund Manager Comment
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Although Global equity markets closed the month virtually unchanged with the MSCI $ World index (Total Return) slipping just 3bp over the month, this moderate move belied a month of extreme volatility. A follow on from May's inflation fears saw the index fall 6% in the first two weeks of June before clawing its way back as the US Federal Reserve issued a statement saying inflation expectations were "contained", partially allaying investor concerns over future aggressive monetary tightening.
Against this backdrop the Equity Alpha Fund was down 1.2% for the month. Whilst the past two months have been challenging, over a rolling 12 month period and since inception the fund remains ahead of its performance objective of capturing 80% of the market rise with a 12 month return in excess of 14% and performance since inception of 23%.
The key contributor to the drawdown in June was the Waverton Continental European Fund, which was down 2.9% compared to the MSCI Europe, which was flat. The Fund Manager continues to believe that the market setback has been driven by macro factors and that at the underlying company level the outlook remains favourable. Having spoken to him again recently he has re-iterated this view and went as far as to say that in the 18 years that he has managed money he has seldom felt as confident as he does today about the underlying strength of the businesses he owns. He believes growth in Europe continues to strengthen, companies have strong balance sheets, the growth prospects of the stocks he owns is good and valuations are attractive. Nevertheless, despite his fundamental view he raised cash to 26% in June from 11% at the end of May in order to protect the portfolio against any further short term weakness. This discipline is fundamental to our approach and absolute return bias, and is an important consideration in our manager selection process.
Our Asian Fund, was down 1.8% compared to the MSCI Asia Pacific ex Japan, which was up 0.6%. The portfolio was negatively impacted by two stock specific stories both of which have been discussed with the manager. Additionally the Asian component of the MSCI World Index comprises mainly developed Asian markets, including a large allocation to Australia, all of which have fared better in the recent sell-off than the emerging markets within the region. Our Asian managers typically have very low allocations to Australia, believing as do we that the Asian opportunity is to be found predominantly by investing directly in the Asian region. We continue to believe that Asia will likely deliver superior performance over time and will look to increase our exposure in this region. With respect to our Asian fund this is the first time that it has underperformed in a negative market since it's inception in August 2003 and we remain confident that it will continue to protect in weaker markets.
Our Emerging Markets Manager continued to provide significant protection within his portfolio and, as a result, is now significantly ahead of the index year to date. For the 3 month period ended June 2006 the fund is down 1% compared to the MSCI Emerging Markets Index, which is down 4.3%. As a result of its recent outperformance the fund is now up 12% year to date compared to the Index, which is up 7%. Having recently spoken to most of the underlying managers in the portfolio we are comfortable that they are cognisant of short term risks faced by the markets and that they are behaving both rationally and dynamically. As always we continue to review and monitor our allocations in the fund in order to ascertain where our risks and opportunities lie and to ensure that the portfolio is appropriately positioned for the future.
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TriAlpha Equity Alpha comment - Mar 06
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Friday, 12 May 2006
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Fund Manager Comment
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Global equity markets resumed their upward march as investors reacted favourably to a mix of positive economic data, strong earnings results and ongoing M&A activity.
The MSCI $ World index rose 2% over the month with all of the major regions enjoying positive returns. Continental Europe led the gains with a rise of 4.3% inUS $ terms. US economic data releases were positive with strong employment data and evidence of rising wages. In Europe, Germany's Ifo business confidence index saw an unexpected rise. Elsewhere, Japan's decade of deflation was declared over when its central bank ended five years of ultra-loose monetary policy and moved to a regime of managing interest rates.
On the monetary front the US Federal Reserve raised interest rates by 25bp to 4.75% at its first policymaking meeting chaired by Ben Bernanke, and indicated that while it may have to raise rates further that it was close to the end of its tightening campaign. Elsewhere, the European Central Bank also raised euro rates by 25bp to 2.5%.
Commodity prices were stronger with Brent crude oil rising 7.5% on the back of renewed supply concerns. A number of metals hit record highs over the month as evidence of continuing strong demand from China emerged.
We remain positive on the outlook for equities. Economic expansion allied with low inflation in the global economy is innately positive for equities, and monetary conditions are still conducive for further outperformance.
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TriAlpha Equity Alpha comment - Dec 05
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Monday, 13 March 2006
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Fund Manager Comment
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Global equities enjoyed a positive start to the new year, recording their best monthly gain since November 2004. Generally strong earnings results, positive economic data from Europe and Japan, and an increase in M&A activity more than offset rising geopolitical tensions in the Middle East and a surge in oil prices.
The MSCI $ World index rose 4.4% with the non-western equity markets leading the gains. The Emerging Markets rose 11%, followed by Asia Pacific which climbed 7%. On the downside, the US was the worst performing major region with a return of only 2.6%.
US economic data releases were more mixed than in previous months, with shortfalls in employment numbers and a significant slowdown in 4th quarter GDP growth. Conversely, data from Europe and Japan was largely positive.
Japanese equities showed great resilience to bounce back from losses mid-month. The falls came in the wake of an investigation into an Internet stock for violations of securities laws.
Brent crude oil surged 15% over the month as events in Israel and Iran raised geopolitical tensions, and oil supply concerns, in the Middle East.
Looking ahead, our focus is on the Asian markets as we see strong secular growth drivers in those economies. In the short term, however, the valuation premium of the US market has shrunk considerably over recent months and there is the potential for some catch up. To this end we have moved some equity exposure back to the US out of Europe.
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TriAlpha Equity Alpha comment - Sep 05
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Wednesday, 26 October 2005
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Fund Manager Comment
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The fund was up 1.53% in September, compared to the MSCI World Index, which was up 2.60%.
Funds which held performance back this month included the JP Morgan Japan Alpha Plus Fund, which was up 5.8% compared to the MSCI Japan, which was up 10.3%. This was a continuation of the story highlighted last month namely strong out performance by the large cap names which the manager is currently underweight. Since the end of September Japan has sold of slightly and is down 1.3% month to date whereas the JP Morgan Fund is up 0.44%.
The other notable under performer this month was the Close Finsbury North America Fund, which was down 1.5% compared to the MSCI US, which was up 0.8%.
The primary reason for this fund's under performance this year has been the fact that they have not owned any energy stocks. The energy sector currently comprises 10.2% of the S&P 500 and to the end of August was up 37.8%. Energy together with utilities (many of which are quasi energy plays) were the only two sectors that to the end of August had made money in the US. Ordinarily the team do not invest in energy stocks, as these companies do not match either the qualitative or quantitative criteria that they look for in an investment. They have however dedicated significant time to reviewing this decision this year to satisfy themselves as to whether or not 'this time it is different'.
We have held numerous discussions with the manager and believe their investment process remains true to their absolute return philosophy and that the extent to which their portfolio deviates from the benchmark may from time to time produce returns very different to those of the benchmark. With energy stocks having sold off this month the manager is down 0.5% month to date compared to the MSCI US, which is down 3.5%.
Our strongest performance in September came from the Cantillon Global Value Fund, which was up 5%. Since launch this fund is up 10% compared to the MSCI World which is up 7.3% for the same period.
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TriAlpha Equity Alpha comment - Jun 05
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Thursday, 1 September 2005
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Fund Manager Comment
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Performance Review
The equity market rally that started in May carried on strongly in July with the MSCI World Index posting a gain in USD terms of 3.5% for the month. The Equity Alpha Fund was up 3.2%, bringing the return for the Year to Date up to 3.8% compared to an MSCI return for the Year to Date of 2.8%. On a rolling twelve month basis the fund is up 15%.
Across the board our underlying managers once again delivered pleasing results and on a relative basis our strongest performance was from our Japanese manager who was up 3.2% compared to an Index return of 1%. On a rolling 12 month basis the Japanese fund is up 31.5% compared to the MSCI Japan, which is up 5.8%.
Other strong performers this month were the Waverton Continental European Fund, which was up 4.6%, the Cambrian Fund up 4.1% and the Wanger US Smaller Companies Fund up 3.8%. Interestingly the cash position on the Waverton Fund has continued to decline and is now down to 4.7%, the lowest level since 2003 when the equity market rally first commenced.
Fund Managers Commentary
Global equity markets enjoyed their biggest gain of the year so far in July. Solid economic data, strong earnings reports and a revaluation of the Chinese currency combined to offset investor concerns over terrorist attacks in London and crude oil prices hitting record highs.
The MSCI $ World index rose 3.4% with the Emerging Markets the strongest region with a gain of 6.6% in US $ terms. Japan was the weakest region for a second consecutive month with a 1% gain in US $ terms.
Technology stocks in particular enjoyed a strong earnings season with the technology-heavy Nasdaq Composite index rising 6% in July compared with a 3.6% gain for the Dow.
US economic data turned more positive with manufacturing data improving while inflation remained muted. German business confidence also surprised on the upside. There was no action on the monetary front from any of the major central banks, but expectations of a 25bp rate cut by the Bank of England in August intensified
In the currency markets, China finally bowed to intense foreign pressure and growing domestic economic imbalances by replacing its decade-old currency peg to the US $ with a more flexible exchange rate system.
Despite some negative developments such as terrorism and high Oil prices the key drivers of equities continue to be supportive and with the Global PE ratio at a 20 year low we remain confident that there is more steam left in this equity market rally.
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