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Monthly Fund Commentary – August 2017

August 2017

Top 10 holdings

Heineken
Microsoft
Visa
Unilever
Reckitt Benckiser
Comcast
PayPal
Cognizant Tech Solutions
eBay
Oracle

Global Titans Fund commentary

Global stocks finished up just over 1% for the month on the back of investor optimism over improving world economic growth.  Economic growth accelerated in the US and appears to be broadening across the euro zone. This has raised questions about the direction of monetary policy, however, markets seem relatively unconcerned.

The Fund’s unit price increased by 1.0%, after the cost of protection, in August.  The performance was driven by positive contributions from our holdings in PayPal, Visa, Microsoft, Diageo and Unilever. The main negative contributors were Stryker Corp, Reckitt Benckiser, Medtronic, Walt Disney Co and Priceline.com Inc.

The Fund continues to have no foreign currency hedging in place as Insync consider the main risks to the Australian dollar to be on the downside.  Over 50% of the Fund is currently protected using our put protection strategy.

The major new buys during the month were Stryker and Accenture. Stryker is a leading global medical technology company that offers a diverse portfolio of reconstructive joint, spine, medical, surgical and neurovascular products. We believe the company is particularly well positioned for the growth in robotically assisted orthopaedic surgery. Accenture is a global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. It is a major beneficiary of the global megatrend in digitisation.

Our only outright sell during the month was Nestle based on valuation. We have held the stock since the inception of the fund.

Benefitting from the cloud and artificial intelligence megatrend

Oracle’s products are often mission-critical to the operations of its 400,000 customers, which include some of the largest companies and governments in the world. Oracle’s comprehensive portfolio of applications, platform and infrastructure technologies is designed to address an organization’s IT environment needs including business process, infrastructure and development requirements.

Oracle’s is an extremely profitable “razor and blades” business model. In addition to 70% (and growing over time) of its earnings coming from the recurring revenue businesses of software support, hardware support and cloud software, Oracle’s massive size gives it a large competitive advantage with respect to staying at the forefront of technology. As an example of this will be the company shortly releasing the world’s first fully autonomous database. We believe that Oracle’s artificial intelligence and machine learning business is poised to have a significant impact in the enterprise market.

If there’s one thing that strikes us whenever we hear Chairman Larry Ellison and co-CEOs Mark Hurd and Safra Catz speak on earnings calls and at Financial Analyst Meetings, it’s their passion for Oracle and their desire to win. Oracle has one of the most experienced and highly incentivized management teams in the industry.

One of the reasons why Oracle continues to remain attractively valued is because it was considered to be relatively late to transitioning to the cloud. Oracle’s cloud transition model is starting to work as evidenced by growth in cloud subscriptions now more than offsetting the license revenue declines, even organically, marking it a key milestone. If Oracle is successful in defending its large installed base of customers and migrating them to the cloud, this could result in meaningful upside to revenues and earnings. The stock continues to trade at an attractive free cash flow yield of 6.7%.

 

PORTFOLIO CHARACTERISTICS
Average market cap A$149bn
WAVG⁴ forecast dividend yield 1.53%
Wt AVG forecast PE ratio 20.6x
WAVG ROE 20.6%
Current FX hedging position 0% overseas exposure
hedged back into $A
Current put protection   50%
Benchmark Unconstrained

 

KEY INFORMATION
APIR code SLT0041AU
ASX mFund code INS01
Distributions paid Annually, as at 30 June
Unit pricing Daily
Minimum initial  investment $10,000
Applications &  redemptions Each Sydney business day
Entry &  exit fee Nil
Buy/Sell spread 0.20%/0.20%
MER 1.3% (plus GST) p.a.
Investment style
Concentrated, large cap global equity fund, incorporating active currency management and downside protection strategies
Investment  objectives
To provide long term capital growth and some income through investment in listed global securities. Insync believes that a strong focus on capital preservation will lead to superior relative and absolute returns over time
How to apply
Online or via application form at www.insyncfm.com.au

Platform – Macquarie, Colonial FirstWrap, Mason Stevens, Onevue, ASX mFund

 

Contact Insync
www.insyncfm.com.au
T: + 61 2 8094 1255
E: info@insyncfm.com.au