Global equity markets proved resilient in the 3rd quarter of 2019. Most markets turned in relatively flat performance in local currencies, with the weak Australian dollar being the major contributor towards strong performance of the benchmark in AUD. This was achieved with a background of ongoing trade tensions, spiking oil prices and rising concerns about slowing global growth. US equity markets led, followed by non-US developed and emerging markets.
On the monetary policy front, many central banks shifted toward accommodative stances with the Fed cutting its benchmark rate again in September following the cut in August. At the sector level, utilities, real estate and consumer staples outperformed the benchmark during the quarter whilst energy, health care and materials lagged.
The Insync Global Quality Equity Fund returned -1.70% compared to the benchmark return of +1.99%, with the Insync Global Capital Aware fund delivering a return of -2.21% after the cost of downside protection. Despite a weak September for the funds the quarterly and one-year performance numbers continue to show strong levels of out performance versus the benchmark.
In September, there was a significant shift away from quality growth companies towards cyclical companies. We do not see this as a start of a new trend, as the global economic backdrop continues to be challenging, with low growth and low inflation, this is a major headwind for businesses that are reliant on a stronger economy to drive their earnings. The last time cyclical, value-based businesses performed so strongly was in late 2016, after Trump won the US presidential election, where optimism for growth was high but growth expectations soon came down rapidly. The current backdrop continues to favour secular growth businesses with high levels of profitability.
Positive contributors during the month include Apple, London Stock Exchange, Adidas, and Bristol-Myer Squibb. Detractors were S&P Global, The Walt Disney Co, Visa and Intuit. No currency hedging continues across both funds as we consider the main risks to the Australian dollar to be on the downside.
Current market conditions continue to reflect the trend in place since the GFC of low growth and low inflation. If this trend continues to persist over the medium to long-term, our portfolio of high ROIC stocks benefitting from global megatrends should outperform, as the Insync portfolio of companies is less dependent on the global economy to generate consistent profitable growth. The portfolio, which has very specific quality and growth attributes, has a consistent long-term track record of picking up almost all the upside in rising markets as well as, importantly, buffering the fund from significant market falls during major market corrections.
EQT Responsible Entity Services Limited (“EQT”) (ABN 94 101 103 011), AFSL 223271, is the Responsible Entity for the Insync Global Quality Equity Fund and 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.