07 Aug Munro Global Growth Fund Monthly Report – July 2019
The Munro Global Growth Fund returned 0.9% for July, comprising a return of 0.4% from equities and 0.5% from currency. The MSCI AC World Index (AUD) returned 2.1% (0.9% from equities and 1.2% from currency).
The month of July was generally positive for equity markets on the back of a positive earnings season but was marred late in the month by a more hawkish than expected speech by Federal Reserve Chair, Jerome Powell.
On a stock level, positive performance attribution came from Alphabet, along with US coffee chain Starbucks and Dutch semi-conductor ASML. Negative contributors included Kering, after missing consensus earnings expectations, along with Netflix and Aena. On currencies, given the Fund’s 40% holding in USD, the appreciation of the USD against the AUD added 50bps to performance. By comparison, the fully unhedged index gained 118bps.
The ongoing trade war continues to sap confidence and maintain the trend of subdued economic growth and declining global interest rates. With fresh US tariffs slated for 1 September, equity markets will again enter a period of heightened near-term volatility, as questions swirl around whether the Fed can do enough to offset the negative trade implications. It appears central banks will need to do more to extend the cycle and with the outcomes again riding on the whims of just a few policy makers, we have since lowered equity exposure from the end of July to manage downside volatility.
On the positive front, recent US and European corporate results have confirmed the resiliency of many of the portfolio’s key structural growth investments. With most companies showing good growth and outlooks despite the uncertainties, we continue to remain comfortable with the Fund’s core holdings. Elsewhere the falling AUD, while positive for absolute returns, continues to undermine our relative returns. As a reminder, the Fund approaches currency in an absolute, not relative sense, and consequently is reluctant to hold a fully unhedged position. The Fund currently holds 60% AUD, 40% USD based on the view that betting against the AUD below 70c is becoming a game of diminishing absolute returns.