Cognizant Tech Solutions
Global stocks advanced amid signs of an improving world economy, strong corporate earnings growth and central bank stimulus measures. Japanese stocks led developed markets higher as investors welcomed the snap election victory orchestrated by Prime Minister Shinzō Abe.
Information technology stocks rallied, supported by better-than-expected corporate earnings in the sector. Basic materials stocks also enjoyed significant gains amid accelerating activity in the manufacturing sector and higher demand from China. Media and telecommunications stocks fell on concerns about the declining number of cable TV subscribers.
The Fund’s unit price increased by 3.8%, after the cost of protection, in October. The performance was driven by positive contributions from our holdings in PayPal, Microsoft, Oracle, Visa and Stryker. The main negative contributors were London Stock Exchange, Unilever, Reckitt Benckiser and Comcast Corp.
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.
Still undervalued with a long run way of growth
Many investors would consider Visa to be a well appreciated investment reflected in the current valuations. Highly profitable companies typically trade at a premium to market multiples for good reason as they have the potential to compound returns at higher rates than the average company particularly if they have a long run way of growth. We consider Visa to continue to be undervalued based on the company sustaining its high levels of profitability over the medium to long term.
Apart from attractive long-term trends, where the secular shift away from cash and cheques is in the early innings with 80%+ of global transactions still conducted by cash and check, there are two medium-term trends which we think will bolster Visa shares: Visa Europe and increased uptake in India. Visa acquired Visa Europe in 2016 and we believe the results will surprise on the upside and offer a multi-year earnings catalyst as cash still made up around 79 percent of everyday payments across the euro area last year, according to a European Central Bank study. In addition Visa has the opportunity to increase its fee structure in Europe as it is well below the Visa network average. In India, Prime Minister Narendra Modi’s decision to remove high value currency notes from circulation should accelerate development of electronic payments in the country.
Visa is deeply integrated within the payments ecosystem with Visa accounting for nearly half of all credit card transactions. As a software based business, Visa can grow with only minimal increased capital investment. As a result, incremental margins should trend higher due to tremendous operating leverage. Visa continues to be a core holding as it is a high return on capital business with a long run way of growth trading on valuations that undervalue the sustainability of its profitability over the medium term.
|Average market cap||A$189.3bn|
|WAVG⁴ forecast dividend yield||1.50%|
|Wt AVG forecast PE ratio||20.3x|
|Current FX hedging position||0% overseas exposure|
|hedged back into $A|
|Current put protection||50%|
|ASX mFund code||INS01|
|Distributions paid||Annually, as at 30 June|
|Minimum initial investment||$10,000|
|Applications & redemptions||Each Sydney business day|
|Entry & exit fee||Nil|
|MER||1.3% (plus GST) p.a.|
|Concentrated, large cap global equity fund, incorporating active currency management and downside protection strategies|
|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
|T: + 61 2 8094 1255|