October was a positive month for global equities lifted by the US Federal Reserve cutting interest rates for the third time this year, and the US and Chinese authorities moving closer to agreeing a partial deal on trade. Emerging markets returned 4.2% compared to 2.6% from developed markets in local currencies. Overall, third quarter US corporate earnings have been better than expected, but year-over-year growth has been negative as US companies continue to give lower guidance for next year’s earnings, with the trade dispute an ongoing theme.
The Insync Global Quality Equity Fund returned -0.33% for the month of October compared to the benchmark return of +0.60, with the Insync Global Capital Aware fund delivering a return of -0.89% after the cost of downside protection. The Funds quarterly and one year performance numbers continue to show strong levels of out performance versus the benchmark.
There continued to be a shift from the quality growth companies towards cyclical companies in October led by optimism around some form of partial trade deal. Whilst central banks globally now have an accommodative monetary policy, in an effort to avert a recession, we continue to hold the view that the global economic backdrop remains challenging with low growth and low inflation a major headwind for businesses that are reliant on a stronger economy to drive their earnings. The current environment continues to favour secular growth businesses with high levels of profitability. We appreciate that investors will seek, from time to time, to rotate into the more value based cyclical businesses, in the hope that the economic cycle will improve sharply, but previous periods of rotation have led to disappointing returns.
Positive contributors during the month include Apple, Bristol-Myer Squibb, Facebook, Rightmove PLC and Nvidia Corp. Detractors were Heineken, Estee Lauder, Constellation Brands, Accenture and Intuit. No currency hedging continues across both funds. Insync considers 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, then then investing in a portfolio of high ROIC stocks benefiting from global megatrends should prevail 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 of 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.