Equity markets rebounded strongly in January after one of the worst Decembers on record. Comments by the US Fed calmed investors’ nerves, indicating any softer economic data may result in a pause in interest rate hikes. This marked a significant change in Fed commentary. Sector returns were generally strong across the board. The energy sector is a good example as it bounced back along with oil prices. Defensive consumer staples, utilities and health care sectors were the poorest performers.
Our Global Capital Aware fund delivered a return of +3.28%, after the cost of downside protection and our Global Quality Equity Fund returned 4.62% in January compared to the benchmark return of +4.19%.
Positive highlights include Facebook, Intuit, Intercontinental Hotel Group, London Stock Exchange and Adidas. Detractors were Twenty-First Century Fox, Heineken, Walt Disney, Visa and Zoetis. No currency hedging continues across both funds. Insync considers the main risks to the Australian dollar to be on the downside.
January Fund Results
Technology Sector - A Less Populist View
Some investors now look at technology companies with derision painting a picture of an investment bubble. In particular, the so-called FANG stocks. Privacy issues grabbing media headlines don’t automatically equate to severe financial impacts in this sector.
‘Overvalued’ is a common cry, yet without considering the quality of their business models underpinning them and the Megatrends they ride.
Delivering consistently high returns on invested capital (ROIC), generating prodigious amounts of cash flow, long runways of growth and very strong balance sheets are ignored by many - but not us. We see compelling long-term value. An excellent example using PayPal can be found on the “Updates” page on our website.
The trends in these two graphs (excellent work by Credit Suisse) show technology revenues growing at a faster rate than the general market since 2009 with profitability (based on margins) also much higher. Technology balance sheets are much stronger than the market average.
Many have no debt and plenty of cash - a highly attractive proposition in a world drowning in debt. This offers plenty of downside protection in the event of a major economic shock or recession.
Despite all these positive attributes, investors followed the media headlines and the market herd resulting in indiscriminate selling during December. Astute investors were able to purchase some of the best at just a modest premium to the general market.
EQT Responsible Entity Services Limited (“EQT”) (ABN 94 101 103 011), AFSL 223271, is the Responsible Entity for the Insync Global Capital Aware Fund . EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) (“Insync”), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.