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Monthly Fund Commentary – September 2017

September 2017

Top 10 holdings

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

Global Titans Fund commentary

September seemed like a case of Deja vu with November of last year. The “Trump Trade”, full of hopes for a more robust economy, ignited again as the topic of tax reform came front and centre. The Emerging markets led, and other developed markets modestly outperformed the US. Economic indicators globally continue to point to solid growth, supporting earnings growth and market sentiment. The Fed announced it will finally begin unwinding quantitative easing, allowing maturing debt to gradually roll off the balance sheet—news that markets met with indifference.

The sector relative returns after the election, from November 8 to November 29 of last year, nearly mirrored returns from September 8 to September 29 of this year. The cyclical sectors outperformed the defensive sectors this time led by the energy and materials sectors, as commodity prices rallied, and the more defensive health care and consumer staples sectors trailed. Similar to November 2016 the financials significantly outperformed and bond-proxy sectors underperformed.

The Fund’s unit price increased by 0.8%, after the cost of protection, in September. As discussed cyclical stocks significantly outperformed quality stocks with the extreme moves mirroring last year’s Trump rally. The fund performance was driven by positive contributions from our holdings in eBay, Paypal, Visa, Cognizant Tech Solutions and Amadeus IT. The main negative contributors were Medtronic, Reckitt Benckiser, Oracle, Comcast and Heineken.

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.

 

Stryker – Disrupting the status quo

Disruption is a megatrend and is a key part of assessing today’s investment landscape. Disruptive forces are accelerating across many industries and is even creating change in old established industries where innovation has been relatively minimal. One example is the orthopaedics industry, which mainly consists of hip and knee implants, which has operated in a stable and highly profitable industry structure primarily split between 4 players. There has been limited product differentiation over a long period of time with no provider gaining more that 1.5% market share over the past 8 years.

Insync believe that Stryker’s robotic platform has the potential to be highly disruptive which has the potential to break the market share stalemate between the major players. Robotic-assisted surgery has the greatest likelihood to drive share gains as it has the potential to deliver consistent results through improved alignment and soft tissue management. The main reason for using a robotic system is to be able to hit very accurately a target that varies from patient to patient. It is particularly useful in knees because they are more problematic (than hips) and a large proportion of patients that aren’t satisfied with their knee replacement. In fact, satisfaction rates are only around 65 percent for knee operations, against 95 percent for hips, according to industry surveys.

Stryker’s management have an excellent track record in making capital allocation decisions. It has increased its dividend every year for 24 consecutive years. This degree of success hinges on strong acquisitions, consistent profitability, and a diverse revenue stream that shelters the company from single-point failures. The ageing population provides a long run way of growth and Stryker’s first mover advantage in robotics should enable it to take market share and drive profits and dividends well into the future.

 

PORTFOLIO CHARACTERISTICS
Average market cap A$189.3bn
WAVG⁴ forecast dividend yield 1.50%
Wt AVG forecast PE ratio 20.3x
WAVG ROE 21.0%
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