EP Global Opportunities delivers good numbers despite a momentum market – The investment style of the manager of EP Global Opportunities (EPG) is a to seek out undervalued companies from around the world. With the periods of volatility that have been a feature of recent markets, the markets have favoured momentum investors over value-driven stock selection. The manager, Dr. Sandy Nairn is well known for picking stocks and holding them for as long as it takes for their value (as he and his team at Edinburgh Partners see it) to be realised.
Despite that the market has not necessarily favoured the manager’s style, the company’s NAV increase of 14.4% on a total return basis for the year in the year to 31 December 2017. There is no official benchmark. However, to put the performance into context, the FTSE All-World Index returned 13.8% and the FTSE All-Share Index rose by 13.1 per cent. The share price at the end of the year increased by 11.2% on the same basis. At 31 December 2017, the discount to NAV was 5.2%.
The fund manager reported that the best performing shares were broadly spread geographically, with the most significant contributions coming from Ubisoft Entertainment in France, Commerzbank in Germany, Galaxy Entertainment in Hong Kong, Shanghai Fosun Pharmaceutical in China and Panasonic in Japan. Strong performances came from Bangkok Bank and Bank Mandiri in Asia, PerkinElmer in the US and in Royal Dutch Shell and HSBC. In contrast, the poorest performing stocks in the portfolio were Apache, Celgene and Whirlpool in the US, Japan Tobacco, Swire Pacific in Hong Kong and Nokia in Finland. The investment manager continues to believe the investment case remains intact for all of these shares and in three of them, Apache, Celgene and Swire Pacific, they added to the existing holdings.
In January 2018, we reported that Edinburgh Partners was to be acquired by Franklin Templeton. This is currently underway and is expected to completed in the first half 2018.
Chairman’s outlook
In the report, the chairman of the company Teddy Tulloch offered the following outlook. Is interesting to note that the fund manager is finding less undervalued companies in the US, leading to greater exposure in Asia Pacific, Europe and Japan. This is in keeping with the comments from other chairmen and fund managers reported in our monthly economic roundup for March
The global economy ended the year on an improving trend. Should this be sustained in 2018, inflation may become a more prominent feature of the economic landscape as labour markets start to tighten. Bond yields have been rising from very low levels and in some countries the rise has accelerated. This is particularly true in the US as the fiscal stimulus from tax cuts and plans for infrastructure spending is being applied when the economy is already in a cyclical upturn. As bond yields rise, so competition with equities will increase and, in due course, we are likely to witness the removal of some of the valuation anomalies that have been seen in equity markets in recent years.
As highlighted in the portfolio activity section above, our Investment Manager is finding difficulty in identifying undervalued companies in the US and continues to see valuations there as elevated in comparison with the rest of the world. As a consequence, we anticipate that we will maintain our higher weightings in Asia Pacific, European and Japanese stocks.
After a period of strong stock market performance, including that of the year under review, valuations are reasonably full. Growth stocks have been particularly strong in recent years, with value-based shares tending to lag. However, we are encouraged that our value-based investing performed better in 2017 and the economic environment may well increasingly favour the approach of our Investment Manager, which has maintained its disciplined approach of only investing in securities which it considers to be undervalued on an absolute basis.
EPG : EP Global Opportunities delivers good numbers despite a momentum market