Fund review

The STANLIB Global Equity Feeder Fund returned +6.8% for the quarter compared with +7% from the composite benchmark. Sector allocation was the main cause of the quarter’s underperformance, with the underweight in utilities detracting most. Stock selection was neutral, as gains from our selections in communication services helped to offset detraction from those in healthcare. At the stock level, managed care enterprise Centene detracted. The loss of a renewal contract in Louisiana weighed on the stock, as did talks of a national health plan by Democratic presidential candidates. Centene plans to expand its exchange business next year, which could generate synergies. India's HDFC Bank also lagged after reporting some weakness in retail loan growth. More positively, margins were stable and asset quality held up well. Corporate tax cuts by the Indian government buoyed the stock later on. Google’s parent company Alphabet was our strongest performer after it reported a reacceleration in revenue growth and healthy margin expansion. We believe that the market is underestimating the sustainability of Alphabet’s growth. Equinix also added value after reporting a strong quarter for recurring revenues.

Market overview

Despite bouts of volatility, global equities ended the quarter in positive territory, with the MSCI ACWI up 1.2% in local currency terms. The re-escalation of US-China trade tensions temporarily unnerved markets, with both sides exchanging further tariff blows in August. However, the subsequent agreement for a fresh round of talks drove a recovery, as did accommodative moves by central banks. North American and Europe ex UK stocks benefited from interest rate cuts, but optimism was kept in check by signs of damage from the trade war and some weak economic data. In the UK, new Prime Minister Boris Johnson’s ‘do or die’ Brexit stance weighed on stocks. Meanwhile, emerging markets lagged on fears about economic growth, a firmer US dollar and reports that President Trump was planning to delist Chinese stocks from US stock exchanges. Japanese stocks fared well. The Bank of Japan hinted at further easing, as policymakers cited lost momentum in attaining the 2% inflation target. Utilities and consumer staples led returns against a backdrop of rising volatility and falling core government bond yields, which weighed on financials. Energy and materials lagged, as concerns around global growth and demand lingered.

Looking ahead

Global equity markets have provided evidence of the value to be found in secular winners that can sustainably outgrow their peers. With scope for these businesses to positively re-rate and expectations that volatility will remain elevated, we believe the 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 are best placed to sustain high returns on capital and earnings growth through the market cycle.