07 Nov Munro Global Growth Fund Monthly Report – October 2019
The Munro Global Growth Fund returned -0.3% for October, comprising a return of 0.9% from equities and -1.3% from currency. The MSCI AC World Index (AUD) returned 0.6% (2.0% from equities and -1.4% from currency).
Equity markets globally were higher with the US S&P 500 +2.2%, the Europe STOXX 600 +1.1%, Japan’s TOPIX +5.0% and the Hang Seng +3.3%. Last month’s rotation from ‘growth’ to ‘value’ stocks continued in October with a rise in US bond yields and a ‘Phase 1’ trade deal between the US and China. Recent US IPOs continued to struggle as ‘lock-ups’ expired and pre-IPO investors took profits that resulted in a flood of selling in the market.
From a Fund perspective, we continued to work our way through this difficult trading environment for our strategy and have not suffered significant stock specific drawdowns despite the market being littered with these in the high growth space. From a stock attribution perspective, positive contributions came from Taiwan Semiconductor and our Internet Disruption group of stocks exposed to the digital advertising structural growth trend. Performance detractors included Boeing and several of our Food & Beverage Revolution stocks, such as Diageo, that were used as sources of funds as the market shifted its focus from defensive growth stocks to more cyclical stocks.
On currencies, the Fund remains roughly 50/50 in USD/AUD which meant it was exposed to the appreciation of the AUD versus the USD over the month without picking up the offsetting benefit of a stronger Euro and GBP.
The third quarter earnings season was volatile with many outsized stock moves on what was, on the surface at least, generally in line with expectation results. Investor positioning played a large role here with numerous cyclicals and financials higher on less-bad-than-feared results, while higher multiple software and healthcare names gapped lower on not-strong-enough results.
Looking ahead some key geopolitical stalemates are coming to a head in the next few months, namely the US-China trade war and the UK-EU Brexit negotiations. The probabilities of a more positive outcome in both geo-political events has increased over the past month, with Donald Trump pressing ahead with plans to sign a limited trade truce with his Chinese counterpart, Xi Jinping. Meanwhile, UK Prime Minister Boris Johnson confounded cynics by getting a Brexit treaty agreed with the EU at lightning speed.
We have positioned the Fund with a higher net exposure, and increased exposure to premium semiconductor companies and 5G beneficiaries as we expect expenditure in the technology arms race to accelerate in to 2020. Elsewhere, we remain invested in Payments, Healthcare and Internet names which have struggled to make headway over recent months but ultimately should continue to grow in the months and years ahead.