Fund review

The STANLIB Global Equity Feeder Fund returned +4.4% for the quarter compared with +1.4% from the composite benchmark. Security selection drove the relative gains, led by our picks within financials and industrials. Asset allocation was neutral. Gains from the underweight in energy were offset by detraction from the underweight in materials. Sports equipment manufacturer Adidas led performance; its shares rose to a record high after quarterly earnings exceeded estimates. This was supported by strong gross margin expansion. With a rapidly growing, high margin online business, we believe that Adidas remains attractively valued. Gaming company Nintendo also performed strongly, following reports that Tencent had been granted initial approval to distribute Nintendo's Switch console in China, as well as a test version of its New Super Mario Bros. title. Additionally, Nintendo’s results showed that it had maintained its game sales per console ratio. We feel that drivers for the company remain in the pipeline as it broadens its intellectual property monetisation and grows international sales. Google’s parent company Alphabet underperformed after its revenue fell short of expectations and reports of potential competition probes in the digital space surfaced. We feel that the market is underestimating the scale and durability of Alphabet's growth, which derives from its market position and broad network.

Market overview

Global equities had a positive second quarter, with the MSCI AC World index rising 3.4% in local currency terms. Dovish central bank signals, well-received election outcomes and hopes that the US and China could resolve their ongoing trade dispute provided support. This helped to offset May’s sell-off, in which concerns around tariffs, political relations and economic growth prompted caution. Europe ex UK equities performed well as mainstream parties held their ground in the EU elections. Later on, easing debt pressure on Italy from the European Commission was also well-received. US equities outperformed as the Federal Reserve’s dovish pivot saw investors overlook mixed economic data. Emerging market and Japanese stocks were among the hardest hit by the escalation of trade concerns in May, while Brexit worries weighed on UK equities. Economically sensitive stocks outpaced their defensive peers. The technology sector performed well, buoyed by software names, while optimism around trade propelled industrials higher. Utilities and real estate lagged amid appetite for higher growth, while declining oil prices weighed on the energy sector.

Looking ahead

Global equity markets continue to provide evidence of the value to be found in secular winners which can sustainably outgrow their peers. With scope for these names to
positively re-rate and expectations that volatility will remain somewhat elevated, we believe this backdrop is ideal for investors with the ability to identify undervalued, long-term opportunities. While factors such as technological regulation and trade may remain in focus in the short-term, we feel that structural factors driving a world which is ‘lower for longer’ will shape markets further into the future. We therefore retain our focus on companies with durable competitive advantages, as we believe these names are best-placed to sustain high returns on capital and earnings growth through the market cycle.

The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.

Fund review

The STANLIB Global Equity Feeder Fund returned 15.6% for the quarter compared with 11.9% from the composite benchmark. Equity relative gains were driven by security selection, with particularly strong picks in the financials and materials sectors. Asset allocation detracted slightly due to our real estate underweight, though our zero weight in utilities added value. At the stock level, semiconductor equipment manufacturer Lam Research and e-retailer Alibaba were our top performers. Despite recent macroeconomic uncertainty, Alibaba’s strong commerce retail sales demonstrated the resilience of its platform power, with earnings topping estimates. A more constructive outlook for trade provided further support. Lam Research rallied during the quarter as markets priced in a pick-up in wafer fab equipment (WFE) spending later in the year, and the company committed to a stock repurchase plan. Multi-line managed care enterprise Centene lagged as negative news around the Affordable Care Act persisted. Centene acquired WellCare in March, adding scale in Medicaid and bolstering Medicare capabilities. Centene retains its edge in its member risk pool and low-cost networks, which drive pricing advantages. Centene’s detraction had little overall impact in a strong period for performance.

Market overview

Global equities rose strongly during the first quarter, with the MSCI AC World index rising 12.4% in local terms. While concerns around the pace of global growth persisted, investors welcomed the dovish shift of the US Federal Reserve, Chinese economic stimulus measures and apparent progress in US-China trade talks. North American equities drove appreciation in the period, supported by a wave of positive economic data. Trade developments benefited Japanese and European stocks, while China outperformed as bank lending reached record highs with stimulus measures taking hold. Despite the continued decline of bond yields, higher growth stocks outpaced their defensive peers. The technology sector led returns, aided by the resurgent semiconductor space, whilst energy rallied on oil supply restrictions. By contrast, utilities and healthcare lagged, as did rate-sensitive financials, as interest-rate-hike expectations moderated.

Looking ahead

Global markets continue to provide evidence of the value to be found in sustainably growing, secular opportunities. With scope for further re-rating and expectations that volatility will remain elevated, we believe this backdrop is ideal for investors capable of identifying the market’s long-term winners. While factors such as technological regulation and trade remain in focus, we believe that structural factors promoting a world which is ‘lower for longer’ remain in place. This should ensure that companies which can sustain above-average growth remain attractive. We therefore retain our focus on companies with durable competitive advantages, as we believe these are best-placed to sustain high returns on capital and earnings growth through the market cycle.

The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.

Fund review

Gross of fees, the underlying dollar fund underperformed its index but remained ahead year-to date. Asset allocation was supportive, owing to our health care and technology overweights. Despite strong performance from our consumer discretionary holdings, stock selection detracted due to our technology positions. E-commerce company Alibaba fell as markets priced in regulatory uncertainties and produced a mixed response to its quarterly results. Gene sequencing company Illumina outperformed on strong directto- consumer genetic testing, biopsies and population sequencing projects. Centene also added value.
Market overview

Global equities rose over the third quarter, and the MSCI AC World returned 4.8% in local terms. Markets were swayed at various stages by trading relations between the US and China but ultimately trended higher through the period, with concerns abating towards quarter-end. The Federal Reserve maintained its interest rate hiking path, a trend expected to persist in the coming months. Against this backdrop, North American equities outperformed, supported by a wave of upbeat corporate earnings, strong employment data and technology stocks. Despite jumping towards the end of the period following a rally in auto names, European equities underperformed on concerns over Turkey’s economic situation and the expansionary nature of the Italian budget. Similarly, despite oil prices approaching four-year highs and a weaker sterling, UK equities lagged. Japanese equities fared better, outperforming late in the period on attractive valuations, a weakening yen and broader geopolitical calm. But emerging markets underperformed amid softer Chinese economic indicators.

Looking ahead

Equity market volatility remains somewhat elevated relative to recent periods, as uncertainties around rising interest rates, tariffs, and technological regulation remain in focus. While these risks are real and may curtail valuation multiples, we draw confidence from the fact that equity fundamentals look robust. Economic growth remains well-entrenched across developed and emerging markets, and this is driving healthy corporate earnings. Within this context we retain our focus on companies with sustainable competitive advantages, reflected by high or rising returns on capital and the potential to compound earnings over time. We believe companies exhibiting these qualities are best placed to outperform across a range of market conditions. The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.