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ACPI Focused Equity Fund - News
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ACPI Focused Equity Fund Comment - Dec 11
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Monday, 19 March 2012
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Fund Manager Comment
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With the holiday season in sight and following a tumultuous year the market closed slightly up for the month of December with the MSCI World (local) climbing 0.4% and the S&P 500 up 0.9%. A mini Christmas rally that started on the 20 December managed to move the major US market indices into positive territory for the year, something that cannot be said for any other major market. The MSCI World (local) finished the year down 8.5%, the Euro stoxx 50 was down more than 17%, Greece nearly 52%, Russia and Shanghai both 22%. Even after adding back the dividends, on a total return basis, 2011 was a dismal year for Global equities.
The best performing asset classes for the year were US, German and UK government bonds with the long bonds generating significant double-digit returns as well as Gold (despite a few corrections), corporate bonds and oil. Everything else was down for the year. This performance pattern reflects the flight-to-safety attitude of many investors especially in the second half of the year. What value is left in some of these assets is anyone's guess but the further upside for DM sovereigns is quite limited even when assuming a Japanese scenario.
Over the course of the month investor sentiment for equities improved significantly and volatility came down as a result. Stronger markets were driven by a more benign US economic outlook with a number of economic indicators improving. While one can argue about statistical quirks it appears that the US unemployment situation is slowly improving with the economy gaining traction again. PMI and ISM manufacturing, Philly Fed, Empire State, consumer and University of Michigan confidence indices, just to name a few, all improved versus the previous month.
A few days before Christmas, the ECB managed to instill some renewed confidence in the markets by launching their LTRO programme (long term refinancing operation), a three-year facility that provides liquidity to European banks at favourable fixed rates. The ECB provided nearly EUR 490bn with another tranche being offered in early 2012. This should ensure that European banks will be fully funded for this year and even slightly beyond and, therefore, alleviate any concerns about the ability of banks to roll their huge debt load. Nevertheless, many institutions will have to issue equity and reduce the size of their books - not an easy task as the shareholders of Unicredit can attest.
With this ECB tailwind, some European sovereigns managed to get away with their bond auctions if not at the yields they were hoping for. Bond spreads for Italy, France, Spain and others are still elevated and considered too high to be sustainable.
For the month, your fund is down 4.9% primarily driven by a very disappointing performance of Gold miners. Gold lost nearly 11% in December, dragging mining stocks down with it. Considering the January performance of many of the miners it appears that this move was year-end driven to a large extent. Fundamentally, we like major precious metals producers, as their balance sheets are strong, earnings high and dividends rising. Valuations are attractive for the first time in many years. Nearly half the month's losses can be attributed to the performance of Gold Corp and Barrick, the former lost 17% in December alone. Our exposure in the Energy sector detracted approximately another one percent while consumer staples and technology contributed positively.
While Gazprom and Fedex are the largest single positions in the fund, our strongest sectorial overweight remains in Information Technology, Basic Materials and Energy, all funded by a Zero allocation to financials.
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ACPI Focused Equity Fund Comment - Sep 11
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Wednesday, 21 December 2011
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Fund Manager Comment
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Equity markets continued to be extremely volatile during September. While the US and UK equity markets stayed within their trading ranges, French, German, Emerging Markets and the Japanese markets made new lows. The USD strengthened against most currencies, and there was major liquidation in most risk related markets, while treasuries made new highs. The move started with a widening of Italy and Spain's CDS. Subsequently HSBC measurement of China's PMI came in at below 50, and fears regarding China's internal leverage increased considerably, given the news flow regarding a number of Trusts and property companies. The combination of these events triggered sell offs on every asset class closely correlated to China's economy. Afterwards, Europe's Purchasing Managers Index (PMI) came in worse than expected, implying a weakening economy. The US data continued to be ambivalent, clearly pointing to weakness, although not necessarily a contraction of economic activity. The Federal Reserve statement regarding operation twist was a non-event. The situation regarding the liquidity and capital adequacy of European banks continued to deteriorate. Finally the negotiations between European leaders regarding debt and banks followed their usual pattern of small actions taken only under major duress after incremental economic deterioration. Given this macroeconomic background, it is no surprise that risk as an asset class was punished. Liquidation even reached gold prices, as they sold off from 1900 to 1600 level, back to where they were in July. Every sector but Consumer Staples had a negative contribution for the month. Gazprom and Federal Express had the highest negative contribution, while Sandisk was the best performer. Technology is the largest overweight. Valuations have reached levels that put many tech sub sectors deep into value territory and we felt that the market is overly negative on the growth and margin prospects of many technology companies. Gold Stock mining companies were about 12% of the Fund at the start of the month. We were able to sell part of this position before the sell off of the stocks, and we had rebuilt the weight in this sector after the sell off. There is no position in the financial sector, and we took advantage of the drop in prices, and the very low valuations, to start building positions in two German stocks, Metro and Bayer. Microsoft, Barrick, Gold, Google and Cisco are the largest holdings of the fund. Price action at the start of October initially deteriorated even more, with US equity markets making a new low. Interestingly, on the 4th of October there was a 4% market swing in the last 45 minutes of trading on the US, on the revived expectations of European authorities actually doing something related to their banks. This action exemplifies how bad the investor sentiment is. Dexia, Belgium's biggest bank, has had its stock suspended until October 10th, and could end up nationalised, even though it passed the Eurozone banking tests a few weeks ago. Most corporations are starting to report quarterly earnings late next week, and there have been a few negative pre-announcements. Margins will be watched carefully, in order to reset expectations for next year. An interesting issue will be whether US corporations are allowed to bring in their cash mountains from outside the US at relatively low tax rates. Such action, combined with the current negative sentiment, could provide temporary relief to the markets, allowing corporation to use their relatively strong balance sheets. Every piece of leading economic data will be watched carefully by the markets given the huge uncertainty. Current equity market expectations are for Europe to be in recession, China to be slowing down materially, and the US to be in a very low growth situation. Credit and Government fixed income markets are arguably pricing in a US recession. One of the two markets will be wrong.
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ACPI Focused Equity Fund Comment- Jun 11
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Monday, 12 September 2011
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Fund Manager Comment
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Equity markets staged an impressive turnaround in June after it initially appeared that on an apparently worsening macro-economic backdrop risk assets would suffer from a 'risk off' positioning of investors. Towards the end of the month, however, leading indicators started turning sharply higher and caught the market by surprise. The US Conference Board's leading index unexpectedly increased by 0.8%. The US ISM also came in much stronger than expected (on the 1 July). As a result, the S&P500 moved up by more than 4% within four days and most other markets performed equally well and better. Overall, US markets still closed slightly down for the month at -1.8%, roughly in-line with the MSCI World at a negative 1.7% but recouped much of their losses generated earlier in the month. Should we get more confirmation of a turnaround in economic activity then this would prove our thesis that the soft patch we just went through was indeed only a mid-cycle slowdown. We are still slightly nervous in regards to the upcoming earnings season as the Global slowdown should have left some skid marks in a number of company's balance sheets. Moreover, it is difficult to predict whether management will play safe and use the, presumably temporary, economic contraction as an excuse to bring down expectations, ie to lower forecasts or whether they will still stick to their guns and confirm market consensus. The most realistic scenario will presumably be a mixed bag of earnings releases. We have already seen a number of profit warnings in June. Siemens reported that growth may slow down as economic tailwinds start to abate and Akzo Nobel as well as Philips both warned and sent their shares tumbling. In the UK, the retail space was battered with bad news, too: Habitat and Jane Norman went into administration while others like Thorntons and Carpetright are closing down many stores. In the fund, the information technology sector was the largest performance detractor of the month, while telecoms and Japan contributed positively to performance. The strongest sector calls continue to be a significant underweight in Financials and a more than two times index overweight position in Technology. The latter area appears to be among the most undervalued sectors in the market at the moment. It has been plagued with profit warnings, declining growth rates, the emergence of competing technologies (cloud computing) and subsequent multiple contraction but now increasingly has the characteristics of a deep value sector with balance sheets heavily in cash, low debt accompanied by low valuations. We are aware that it needs a catalyst to reverse the devaluation trend in the sector but we are still confident that top-line growth and margin resilience should be a strong enough reason for investors to revisit this space.
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ACPI Focused Equity Fund Comment- Mar 11
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Wednesday, 25 May 2011
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Fund Manager Comment
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April's stock market performance broadly resembled the picture we saw in the preceding months: Outperformance of developed markets over emerging markets. The US was up 2.8% and Germany 6.7% for the month, while Russia, India and Chinese A shares were down 0.8%, 1.6% and 0.6%, respectively. From a technical point of view it appears that Global equity markets are in a consolidation range after a steady rise since July/August of last year. Emerging markets are up c.190% from the 2008 low while developed markets have doubled. The case for a Global consolidation of risk assets can also be made from a fundamental point of view. The continued tightening policy in China and other growth markets in combination with some evidence of a mid-cycle slowdown in the large economies suggests that the "marginal" investor now would probably be more inclined to reduce his weightings toward risk assets. The consensus positioning of institutional asset managers is long equities and commodities and short the Dollar with very low cash levels. We would expect some reversal of this trade in the traditionally weaker summer months. Our Global investment thesis at the moment can be best summarised as follows: There is evidence from commodity prices that inflationary pressures in emerging markets will most likely abate over the next few months. This will lead to local Central Banks turning less hawkish as evidenced by last week's statements out of China. At the same time, the economic recovery in developed markets, most notably the US, will hit a temporary soft patch - a mid-cycle slowdown. Despite our concerns of the impact of continued emerging market tightening measures and signs of a stalling US recovery, Global risk appetite has been unappeased in April. Fixed income markets performed well, tightening across the board, and most currencies were up against the US Dollar. Corporate earnings momentum confirms our assumption of a slowdown: positive earnings surprises have reached the lowest reading for the year, ie companies failed to surpass market's expectations. Stalling equities as well as earnings revisions should be a medium-term consequence. European earnings revisions have already turned negative for the first time in a year. Overall, despite the risk of a near-term consolidation, we consider the outlook for equities as a motor of return generation in a yield-starved world to be intact. The only other asset class that is expected to be able to deliver attractive returns is emerging market currencies and bonds. During last month we have acquired a position in the Japanese carmaker Nissan for the Fund. We are of the view that the market's earnings downgrades are not justified and the stock is trading cheaply at these levels. Earnings expectations for the company have more than halved for the financial year ending March 2012, something we feel is overdone. The stock is trading at 7x March 2013 earnings. Noteworthy positive performance contributors for the month were positions in basic materials, technology and energy such as Symrise, Gazprom, Sandisk and Microsoft.
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ACPI Focused Equity Fund Comment- Dec 10
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Monday, 28 February 2011
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Fund Manager Comment
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The year has closed on a strong note with most major markets up for the month of December. Russia was the strongest market, up more than 8% and the S&P500 up 4%. It was a year of two halves, two thirds and one third, to be precise. Equity markets had quite a roller coaster in the first nine months but thanks to Ben Bernanke's speech in Jackson Hole at the end of August in which he offered unlimited support to everything risky, markets turned around and finished the year on a strong note. Equities and commodities closed up while bonds received a fair beating towards year-end. In December, financials, materials and energy outperformed the broader market while consumer-oriented sectors underperformed.
The macro economic data set in December were generally quite upbeat in many areas which lifted equity investor sentiment to new highs. ISM data have recovered further at around 57 and the Philly Fed survey also improved markedly, having reached the highest level since 2004. The Michigan Consumer Sentiment index improved in December and confirmed its uptrend. However, while current sentiment readings are improving, they have still not exceeded their highs of the past two years. Sentiment is improving as economic conditions turn for the better and disposable incomes are rising. This effect is diminished somewhat by a rising savings rate.
Nvidia was the strongest performer for the month up more than one third when it became known that the company's graphic chips will be installed in a number of tablet computers soon to be released. Demand for tablets is expected to be high, and analysts consequently upgraded the company's financial forecasts. While the stock is not cheap anymore we would expect momentum to remain firmly in favour of Nvidia. Gagfah, Cisco and General Electric were other well performing stocks during the month gaining more than five percent each.
Defensive stocks did not perform well in December. As a result, our holdings in Aryzta, Nestle and Richemont have suffered somewhat during the month. Nevertheless, we like them because of the defensive character of their revenue mix and because we think the market is not properly pricing some of these names. Furthermore, we would expect more episodes of volatile markets this year; periods when defensive stocks outperform and protect the fund's performance.
Equities have more upside as multiples have room to expand when inflation is picking up. Also, high quality growth is not being rewarded via higher multiples versus the rest of the market. This may change and support Global large caps.
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ACPI Focused Equity Fund Comment- Sep 10
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Tuesday, 9 November 2010
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Fund Manager Comment
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Equity markets in September generated the best monthly performance since April 2009, driven by improved investor sentiment, better numbers from the housing sector and the anticipation of the beginning of a new round of quantitative easing, commonly known as QE2. Another contributing factor was the collapse of the US Dollar that lost more than 5% against six major currencies. Clearly, currencies are beginning to factor in an accelerated debasement of the Dollar. The debasement of a paper currency is the only other option left before choosing the nuclear option of a default or restructuring. The usual canaries in the coal mine, the Swiss Franc and Gold, are signalling glaringly that trust in the leading World currency is vanishing by the day. The Swiss Franc gained more than 15% since May while Gold, since the end of June, gained 14%. The Japanese Yen also keeps on rising against the US$ despite BoJ intervention but this is less of a worry in our mind. In effective exchange rate terms the Yen is not expensive and it does not seem to be a major problem for Japanese corporates. The US economy seems to follow a muddle-through path rather than being on the verge of a forceful recovery. While unemployment numbers were broadly in-line with expectations in the US, past releases keep getting revised upwards. In stark contrast, unemployment in Germany is still falling and faster than predicted by the market. Very competitive unit labour costs and booming export markets are fuelling a broad-based recovery that now even seems to resurrect the long-forgotten property market of Europe's leading economy. As far as the US is concerned it is worrying that the ISM index keeps deteriorating in terms of the quality of its underlying constituents. While new orders were down, inventories were up - an unhealthy development. Prices paid were also up significantly. Leading indicators are still languishing sideways. With the advent of the Q3 reporting season over the next few weeks we will get a lot more insight into the actual situation of the economy and, most importantly, its outlook. We would expect the actual results to be broadly in line with expectations and possibly some tendency to beat expectations. However, with regards to the outlook, we may hear some more cautious comments from managements. A number of companies, especially in the technology sector, have already highlighted demand issues in some product lines and, generally speaking, inventories are a key line item that is worth watching, as it has been going up over the past few quarters in many industries, even as a percentage of sales. On the other hand, demand in emerging markets is still sizzling, with carmakers and luxury goods companies reporting rising sales.
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ACPI Focused Equity Fund Comment- Jun 10
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Wednesday, 18 August 2010
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Fund Manager Comment
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A number of economic releases during the month fed concerns that the quick recovery that we have witnessed over the past quarters may be stalling or indeed turn awry. US retail sales, housing starts and home sales all came in weaker and jobless claims were stronger than forecast. The market now is increasingly pricing in the possibility of a double dip economic scenario going forward. While we do not believe that we are confronting a second recession in the US, we cannot rule out a double dip, or a period of very volatile GDP growth over the medium term.
This in itself does not have to be negative for equities per se as they are now getting increasingly cheaper on an absolute level basis and dividend yields are very attractive vis-a-vis fixed income. Also, looking at the long term returns, a statistic that is very compelling in our view is the rolling ten year return from equities, which is still firmly in negative territory. Over the past 100 years it has paid off to overweight equities at times of negative 10- year rolling returns, as it coincided with bottoms of equity markets, and eventually returns swung back into positive territory generating double digit annual performance.
During the month we started building a position in Yum! Brands, the owner of Pizzahut, Taco Bell and KFC. While the company's home business may be saturated the demand in emerging markets certainly is not, and the company is now driven by China and the other emerging markets. With expectations of more than 10% average earnings growth over the next few years and trading at 14x 2011 profits the stock looks like an interesting proposition. Consumer demand in emerging markets is expected to remain resilient and supported by ongoing urbanisation.
Tesco was quite volatile towards month end as there were discussions whether property related profits should be included in the earnings numbers or not. As Tesco has repeatedly said that it wants to actively work its portfolio of real estate and monetize it, we should expect a steady stream of revenues and earnings from it that should be categorized as operating. In our view, the share price should recover quickly as this debate has nothing to do with the operating business of Tesco , which is doing very well.
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TriAlpha Equity Yield changes name
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Thursday, 4 February 2010
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Official Announcement
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The TriAlpha Equity Yield Fund has changed name to ACPI Focused Equity Fund.
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TriAlpha Equity Yield Fund Comment- Sep 09
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Monday, 14 December 2009
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Fund Manager Comment
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October was a month of two halves - the first half being a continuation of the previous uptrend and the second half the start of a medium term consolidation that reversed most of the "first half" gains. This move did not come unexpected and should be considered a consolidation after a significant run-up rather than the beginning of a longer term correction. Over the past few weeks there has been a noticeable shift of sentiment that has manifested in strong sector rotation leading to outperformance of many defensive sectors such as food and beverages.
Another interesting phenomenon that highlighted upcoming risk aversion was the reaction of stocks to newsflow. While many company's earnings exceeded expectations (actually more than 50% were beating consensus) the stocks in a number of cases traded off significantly after the announcement. "Sell on good news" is a current theme in the market right now and should not be interpreted negatively in our view. Not only did individual companies broadly exceed expectations, also most economic numbers surprised on the upside.
Economic statistics indicates a rise in unemployment and low inflation, which is attractive as far as equity markets are concerned. There was a similar constellation around 2003. We would expect growth to remain positive albeit slightly subdued for the foreseeable future with employment picking up slowly. Production growth should be supported by restocking - we would expect this to kick-in early next year. As for the equity markets and the fund we expect some more volatility into year-end but also see markets exceeding their recent highs.
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TriAlpha Equity Yield Fund Comment- Jun 09
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Thursday, 13 August 2009
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Fund Manager Comment
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During the month of June the market started to consolidate the gains of the previous months and closed slightly down in most developed markets. After a period of great returns earlier in the year this does not come as a surprise and we consider this a healthy move. Incremental positive news was not greeted by the market anymore with positive price performance but with a rather sluggish reaction. The "greenshoots" story now seems properly priced in and the market reacted as usual - buy the rumor, sell the fact.
Heading into earnings season for Q2 has certainly added to the volatility as we would expect outlook statements to be more mixed this quarter than last. Actual earnings numbers will probably broadly meet targets as we have not seen any significant profit warnings so far in the past few days.
Considering the levels where we are trading now in the US Dollar, energy and base metals as well as emerging market equities, we would not be surprised to see some more consolidation going forward into the summer months. Asian equities, for instance, are not trading cheaply anymore and are vulnerable to taking a breather. We are aware that the recovery will be a very fragile one and despite fiscal stimulus and increased government spending it cannot be taken for granted that these measures will be successful. We expect Equity Markets to be more volatile in the short and possibly medium-term, as a result of more negatively biased commentary during the upcoming earnings season. Also, the technical setup has slightly deteriorated as the market failed to hit new highs for the year and, subsequently, momentum disappeared. Volumes are also lower due to the holiday season and we still see capital raisings and placements happening at a healthy rate, taking liquidity out of the markets.
On the positive side, investors are now more open-minded with regards to new equity investments, especially those who did not participate in the previous rally. Should we experience some higher volatility in the months ahead we are prepared to capture this move with some tactical trading around existing or new positions.
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TriAlpha Equity Yield Fund Comment- Mar 09
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Thursday, 14 May 2009
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Fund Manager Comment
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March saw a massive bear market rally unfolding that was based on a number of incrementally positive news items that triggered big short positions being covered and new genuine long positions being established. We believe this move will be more sustainable in the short term.
Over the past few weeks we have gradually shifted our exposure more towards economically sensitive regions and sectors like resources and industrials. We increased our weight in Europe, reduced our liquidity position and upped the Basic Materials sector. We realised large profits in some related names, such as Xstrata that performed significantly.
Macro economic data out of China, such as car sales surprised the market on the upside and even some early indications from industrial players in Europe imply slightly improving conditions. Employment figures were still very negative across the board but are regarded to be rather backward looking.
What we have noticed since late January and February was a continuous underperformance of defensive sectors versus cyclical sectors that was based on long term money moving out of safe haven names and into economically sensitive sectors.
In our view, the market rallye that began in March and remained very much intact into April should have a few more legs as many players were caught on the wrong side of the trade, ie either not fully invested, in the wrong sectors or actually in a short position. Repositioning in combination with new money going into the market will probably see the S&P500 moving towards 870 in April. Q1 earnings announcements in the next few days will bring back reality and it will be interesting to see the market's reaction.
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TriAlpha Equity Yield Fund Comment- Sep 08
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Friday, 14 November 2008
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Fund Manager Comment
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September has been one of the most traumatic months in Capital markets with many financial institutions in disarray and in need of support and rescue packages. The negative vote on the $700bn rescue package by the US Congress triggered severe loss of investor confidence and caused a 7.0% drop in the Dow Jones index on the day alone (the 21st ever biggest drop). Your fund ended the month down 11.5% against its benchmark's 11.9% drop.
We have little solace in this outperformance. Our investment strategy, though, seems to be bearing fruit with a 1.6% outperformance against our benchmark over the quarter. The investment performance and its volatility are both in the first quartile data compared with over 1000 peer funds (best performance and lowest volatility, for the quarter and last year periods respectively; source Lipper).
The sharp share price falls provided us with very good opportunities to further invest in highquality companies that we know will survive the worst of circumstances in the best way. We have added new names in the form of Philip Morris International and Japan Tobacco, and made further investments in Coca Cola, Richemont and Hewlett Packard. We sold shares in RR Donnelley, Toyota, Canon and Dell. This brings the Cash holding down to 8.5%.
Our investment strategy results in the Fund being predominantly exposed to global first league companies. Their stock exchange listings categorise them in certain regions, but investors can rest assured that the actual business exposures cover many more markets, including Emerging Markets.
It is clear that there is exceptional value in the marketplace. The combination of the credit crisis with the recessionary and inflationary fears still dominates investor's minds. These are well discounted already. In our view we are getting close to positive surprises on inflation, at least.
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TriAlpha Equity Yield Fund Comment- Mar 08
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Thursday, 22 May 2008
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Fund Manager Comment
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The fund ended up 5.65% for April as equity markets recovered from oversold levels in mid March. Global equity markets bottomed on the 17th March and have subsequently gained more than 10%. While it is still unclear as to whether March will represent the market low, the recent rally has nonetheless come as a welcome relief for battered investors.
During periods of extreme investor pessimism, astute investors can buy well run businesses at very attractive valuations as investors indiscriminately sell stocks. At the start of the year we invested in companies like Canon and Cisco (both core positions today) when these stocks corrected significantly from their most recent highs. While we accept that business conditions will get tougher this year we are convinced these names will survive even a severe recession with cash balances of $9bn and $20bn respectively. Furthermore their valuations are very reasonable (if not dirt cheap), but high quality businesses invariably never sell for bargains.
Seven & I Holdings was sold after the stock rallied by no less than 50% from its intra day low in March. Cap Gemini was also sold after a period of out performance since we bought in November last year. We also trimmed Samsung Electronics as its discount to fair value narrowed after a 19% rally year to date.
Cash was raised to nearly 8% by month end and we will look to use any further weakness in share prices to initiate some new positions.
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TriAlpha Equity Yield Fund Comment- Dec 07
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Thursday, 3 April 2008
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Fund Manager Comment
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The fund ended 2007 with a monthly return of -1.64% while global equities returned -1.29%. In December the US Dollar changed course and stengthened from very oversold conditions. As a result the North American market was one of the best performing regions for the month with the Nasdaq out performing other indices. Our view that high quality growth stocks offer good value is reflected in our preference for the likes of Samsung, Microsoft, Dell and Johnson & Johnson at the expense of companies in deep cyclical sectors. While many of our core positions have not performed well this year we are confident that they offer good value, while their business models continue to reflect large barriers to entry.
After a 30% rally in NTT Docomo we sold the position this month. With the Japanese market continuing to struggle towards the end of the year and names like Canon under severe pressure we raised cash in order to be positioned for any further weakness in good growth businesses which may fall in our lap as investors capitulate in this region.
We are heartened by the strong recent rally in some of our core positions. UnitedHealthcare Group, which moved up by 25% from its September lows, should be able to achieve earnings of over $6 per share based on our 2010 estimates. Our target for UnitedHealth Group remains $100 over the next 2 to 3 years, more than 75% higher based on our target of 16 times forward earnings. We will remain patient for this value to be unlocked.
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TriAlpha Equity Yield Fund Comment- Sep 07
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Thursday, 25 October 2007
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Fund Manager Comment
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The fund ended up 1% in September while the market rallied by 4.8%, driven by very strong gains in emerging markets and Asia. On the 18th of September the US central bank cut interest rates by 50 basis points in an attempt to avoid a serious economic slowdown in the US. Markets reacted positively to this news with cyclical sectors out performing in particular.
We sold our position in Cisco after the stock rallied by more than 80% from the levels where we invested in July last year. Even though Cisco is projected to grow earnings by over 12% per annum over the next 5 years, valuation is now looking stretched at more than 20 times forward earnings. In contrast, our core holding in Samsung Electronics offers more compelling value trading at only 9 times 2008 estimated earnings. We have used recent weakness to add to our position.
We initiated a position in AES Corporation. AES is a global power company, which develops, owns and operates electric power plants in countries where economic growth and political conditions favour private sector electricity production. AES will grow earnings at more than 15% per annum over the next 5 years and trades on a free cash flow yield of 12% based on 2008 forecasts while return on equity remains above 20%. With global energy requirements set to increase substantially over the next decade, AES is well positioned to reap the future economic benefits.
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