Martin Currie Global Portfolio has announced its annual results for the year ended 31 January 2016. During the period, which the trust’s chairman describes as one that, “has been exceptionally challenging for global stockmarkets with significant economic and political uncertainty resulting in periods of unusual volatility”, the trust’s NAV total return was 0.9% compared with a 0.1% fall in the FTSE World index, whilst its share price total return was -1.4%. This compares against a total return of -0.1% for the trust’s FTSE World benchmark index. The company says that the modest outperformance of its NAV has been based on good stock selection. The trust has a zero discount policy and the board say that, whilst the NAV increased, the share price fell by 1.4% because of an unusually large discount of 1.9% on the last day of the year. They say that this was largely due to a sharp rise in the US market after the London market closed, increasing the discount overnight but that this was addressed at the start of the next business day.
In terms of income and dividends, the company says that the trust was helped both by reducing costs and rising income and that this has allowed a small increase in the total dividend for the year of 0.05p to 4.15p (2015: 4.10p). The company says that, during the year, it launched a stock lending programme, which adds modestly to income. They say that any stock loans are fully collateralised and do not affect the management of the portfolio by Tom Walker.
In terms of performance attribution, that company’s NAV outperformance was delivered by stock selection and that both geographic and sector positioning netted out as neutral contributors to relative performance. The managers say that the worst contributor over the period was Singapore telecom network, M1. In their vewi, the possibility of a new entrant into the Singapore market caused concern that pricing will become very competitive and destroy margins. They say that they believe this has been overdone and continue to hold M1. Energy distributor Schneider Electric also suffered, along with many industrials, as growth rates declined over the year. The managers think that the valuation of Schneider is attractive, but the growth outlook remains poor and, whilst they continued to hold Schneider, they sold United Technologies, which has suffered in a similar way, in particular in its Otis division in China. Insurance company Prudential plc is one of the trust’s largest holdings and continues to operate well in Asia, the US and UK. However, the managers consider that low long-term interest rates are a headwind to insurance companies and this led to the firm’s poor share price performance during the period.
In terms of positive contributors, the managers say that the stocks that drove the Company’s outperformance included Facebook, which was a purchase during the year, and two long-term outperforming holdings, L Brands (better known on the High Street as Victoria’s Secret) and defence contractor, Lockheed Martin. They also say that BG Group, which was bid for by Shell during the period, was also in the top 10 positive contributors – despite the fallout in the oil and gas sector from falling energy prices.
In terms of portfolio activity, the managers say that this was also driven by stock selection preferences. In the manager’s view, the market collapse in August presented an opportunity to invest in ARM Holdings, the UK microprocessor giant. They also added Japanese telecom-network operator KDDI, which they say provides reasonable growth in a low-growth world, at an attractive valuation level. Facebook was another significant purchase during the year. The managers say that it continues to impress, gaining share in the advertising space, and they believe its apparently rich valuation is justifiable. Other purchases include CSL (Australia), Airbus (Europe) and United Parcel Services and Mylan (both US). In terms of divestitures, the managers sold Pentair and United Technologies, which both face slowing demand, possibly for an extended period. Microsoft was also sold, following several years of very strong performance. Overall the managers say that, following these changes, the trust has less exposure to Europe than a year ago, and the weighting to industrials has been reduced in favour of technology and telecoms.
In terms of outlook, the managers say that, for many companies, cash flow has been strong, but this has been utilised more in share buy backs, dividends and merger and acquisitions than in growth initiatives and that this process could continue, allowing stock markets to make modest progress. However, interest rates are already very low and in many countries negative. The scope, therefore, for shocking the economy into growth with lower rates is nearly exhausted in the managers’ view. As such, they say that new ideas are required and the risk is that the credibility of central banks is now severely damaged, and investors will ignore the policy statements until the hard evidence of improved growth is apparent. In recent years, the mere announcement of a round of quantitative easing was enough to push markets higher. They say that this may no longer be the case. The managers say that they expect the year ahead to be one of low growth, low inflation and low interest rates. It will be a year that challenges advances in global equity markets. However, they believe this is also an environment that will throw up opportunities and where, by choosing companies wisely, reasonable returns can be achieved.
Martin Currie Global’s modest outperformance has been driven by stock selection : MNP