Insync February 2020 Fund Commentary


Performance Commentary

In February, the coronavirus (COVID-19) outbreak replaced trade as the main focus for the markets. Fears of near-term negative effects on Chinese and global growth sent world stock markets lower. Developed market equites fell sharply, with the S&P 500 ending the month down 8.2%. From a regional perspective, emerging market equities outperformed developed markets, despite the fact that most COVID-19 infections are currently in Asia, as investors factored in declining rates of new infection in China compared with increasing infections outside China.

The Insync Global Quality Equity Fund returned -2.94% compared to the benchmark return of -4.49%, with the Insync Global Capital Aware Fund delivering a return of -0.79%, benefitting from having additional downside protection in place. The positive investor outcomes from investing in a very high quality portfolio in not only apparent in rising markets but also in falling markets reflected in February’s performance where the underlying stock portfolio outperformed the benchmark by 155 basis points. The downside protection provided an additional 215 bps of protection in a challenging and volatile month.

Fund Performance - as at 29/2/2020

Positive contributors during the month included Adobe, Domino's Pizza Inc, Nvidia and Ross Stores. Detractors were Accenture, Apple, Amadeus IT and Walt Disney. No currency hedging continues across both funds as we consider the risks to the Australian Dollar to be skewed to the downside.

Our core view is that the prevailing low growth and low inflation environment is unlikely to change in the medium term with the recent data only re-enforcing our base case. Insync constructs a portfolio of attractively priced businesses that have the ability to deliver profitable revenue growth due to an underlying megatrend(s) supported by a high return on invested capital (ROIC). Insync designs a diversified portfolio of companies able to generate consistently profitable growth, independent to the velocity of the global economy.

Both strategies, the long-only (Global Quality Equity Fund) and the long-only with put protection (Global Capital Aware Fund) have a consistent long-term track record of picking up most of the upside in rising markets, and most importantly, an inherently low downside participation (favourable idiosyncratic risk) in declining markets typically caused by cyclical weakness in the global economy. The Global Capital Aware Fund has additional explicit (put) protection, buffering the fund from sharp and significant market corrections (systematic risk). The most recent 3 years of data shows that the Capital Aware fund has captured in excess of 100% of rising markets but only 53% of falling markets demonstrating its benefits as a growth investment with very strong wealth preservation benefits

Disclaimer

Equity Trustees Limited (“EQT”) (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Insync Global Quality 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.

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©2018 by Insync Funds Management Pty Ltd.

Disclaimer

The rating contained in this document is issued by SQM Research Pty Ltd ABN 93 122 592 036 AFSL 421913. SQM Research is an investment research firm that undertakes research on investment products exclusively for its wholesale clients, utilising a proprietary review and star rating system. The SQM Research star rating system is of a general nature and does not take into account the particular circumstances or needs of any specific person. The rating may be subject to change at any time. Only licensed financial advisers may use the SQM Research star rating system in determining whether an investment is appropriate to a person’s particular circumstances or needs. You should read the product disclosure statement and consult a licensed financial adviser before making an investment decision in relation to this investment product. SQM Research receives a fee from the Fund Manager for the research and rating of the managed investment scheme.