What has been happening in the markets?
We are long-term investors, which we define as 5 to 10 years time horizon, however, sometimes it's useful to look back on the previous quarter, which is what we're doing here. It has been a very volatile market environment was a lot of uncertainty both on the geopolitical and on the macro front.
On the geopolitical side, we've had the ongoing US China trade tensions. Those have intensified to say the least, we are heading into some further discussions but it's unclear as to what the final outcome will be. We've also had the Middle East tensions flaring up with the attack on the Saudi Oil production facilities. That has led to a very volatile oil price to say the least.
And finally on the Brexit front that there will be a further delay. However, everything is still possible and there's certainly been a lot of volatility around UK exposed names.
What does the macroeconomic environment look like?
The macroeconomic momentum has continued to deteriorate as far as manufacturing PMI's are concerned and that's been the case across most of the regions globally. On the services PMI the momentum has also been weakening, which could be unnerving and we need to keep a close eye on that.
Finally, in terms of yield curve inversion, that's been an important talking point for the market. It has been historically a signal of upcoming recession. There are some reasons why this might not be the case this time round but it's certainly going to stay an important focus points for the market. Finally central banks have been very accommodative and have been even more so as we've seen with the Fed, and the ECB actions in this quarter.
How significant has the recent style rotation been?
An important development during the quarter, certainly in the last month of the quarter has been a rotation in terms of quality versus value. Value has bounced quite significantly versus quality which has been reflected with sectors like financials, energy or utilities performing very strongly. We have talked in the past about the very unusually wide valuation gap between quality and value and that there would be potentially some style rotation coming up and this could be one such reflection.
How has this impacted performance?
As far as the fund performance is concerned during the quarter, the fact that there has been a rotation away from quality towards value as meant that the fund has performed weakly versus market, which is something that we would have expected given our persistent quality growth bias in terms of exposure. This is not something that worries us and for us. It's very short-term in terms of performance.
Looking at the long term-time horizon that we're looking at, we are comfortable with how portfolio is positioned given the geopolitical and the macro uncertainties out there. We are continuing to focus the portfolio on gaining exposure to companies that have got an attractive growth profile, high return on invested capital, sustainable business model and that have pricing power in a world where we think there is a lack of inflationary pressures and in fact, there are some strong deflationary undercurrents.
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