07 Oct Munro Global Growth Fund Monthly Report – September 2019
The Munro Global Growth Fund returned -1.4% for September, comprising a return of -1.3% from equities and -0.1% from currency. The MSCI AC World Index (AUD) returned 2.0% (2.2% from equities and -0.2% from currency).
Equity markets globally were higher with the US S&P (+1.7%), the Eurostoxx 600 (+3.6%), and Hong Kong (+1.4%). However, the month was dominated by a large ‘growth’ to ‘value’ stocks style swing triggered by a spike in US bond yields and an unwinding of the US IPO market, where there has been a significant shift in investor appetite for loss making unicorns coming to market.
From a Fund perspective, while the relative performance was weak we did manage to avoid the major calamities in our ‘Growth’ space over September with most of the relative underperformance actually driven by a lack of Autos, Energy or Financials in the portfolio rather than any large losses. From a stock attribution perspective, positive contributions came from European semiconductor company ASML, and short positions in subscale internet and e-commerce businesses. Performance detractors included dating and media company IAC, Amazon and payments companies, Visa and Mastercard.
Equity markets continue to be unusually volatile and we suspect this is being driven by a high level of uncertainty around where we are in the cycle.
Market participants’ outlooks for 2020 appear to fit into three broad camps: growth is currently bottoming and will re-accelerate into next year; growth is weak but should muddle through; or the global economy is going into recession. Currently we favour the second camp but the economic data has continued to deteriorate lately and this builds pressure on earnings estimates.
On the flip side, central banks are feverishly cutting interest rates to counter slowing economies, providing stimulus to the consumer and also underpinning corporate valuations with record low risk-free rates. Adding to the volatility has been some vicious rotations between so called ‘value’ and ’growth’ stocks as participants jump from one side of the boat to the other as their views on the outlook above change. From our point of view, recent Fund performance has been disappointing, but we are reticent to change positions to cope with the top down-market narrative of the day. Rather than get caught in the style or macro discussions, we increasingly see a world where a few companies win and get bigger and many companies lose and get smaller. Our goal is to invest in the ones that get bigger and consequently, we remain focused on company fundamentals as we approach another earnings season where we expect our convictions to be confirmed and rewarded.