In July, the Strategic Europe Value Fund* returned +2.88%. At a sector level, the main monthly contributor to alpha was Consumer Staples, mostly driven by strong stock selection, whereas the largest detractor was Health Care.
The best performing sectors in the benchmark were Health Care and Financials; whilst Real Estate and Energy were the worst performing sectors in July.
The Fund’s top performing stock in July was Wirecard, depicting a pure play on the structural shift towards e-commerce, a sector which is experiencing strong and accelerating secular growth trends (in 2017 its organic growth rate was 26%). The Company has become a real global player, with the shares continuing to compound nicely. According to the team, the investment case still has a long way to go as Wirecard reaches critical levels in online payments outside of the U.K. In addition, the Investment Adviser believes that the recent deal with Crédit Agricole is positive and will enhance earnings significantly. Overall, there were no significant detractors to performance over the month.
In July, the Fund sold the remainder of its position in Shire (which was taken over by Takeda) and initiated positons in L’Oreal, LVMH and Roche. Roche is a global pharmaceutical and diagnostics company, with a presence in several therapeutic areas, notably in oncology and immunology. The market has been (and still is) concerned with regards to the impact of biosimilars on Roche’s three largest drugs, which combined account for approximately 50% of revenues. However, Roche has two new drugs launching, which come with higher operating margins than those they replace, whilst Roche is meanwhile doing a good job of mitigating the generic impact as much as possible. Beyond this, Roche has one of the best pipelines in the sector, thanks to its best-in-class R&D. The Investment Adviser believes that, as Roche moves through this transition phase, the market will realise that the Company is at trough earnings (or thereabouts), with new blockbusters in the pipeline and a lot of positive catalysts to come.
L’Oreal is a global cosmetics manufacturer; selling into both the consumer and professional channels, online and in stores. In the Investment Adviser’s opinion, the Company is geographically well diversified and is benefitting from the secular beauty trend, with its online, travel retail and Asian divisions benefitting particularly. The Investment Adviser expects this trend to continue.
LVMH is the world’s largest luxury goods company. The group is currently benefitting from both strong demand in its end markets as well as several self-help opportunities. Going forward, the Investment Adviser sees upside to earnings as Dior Couture is integrated and demand looks set to remain strong.
The Strategic Global Quality Fund returned +3.15% in July. Similar to the Strategic Europe Value Fund, the main monthly contributor to alpha was the Consumer Staples sector, with Health Care being the largest detractor. Throughout the month, the best performing sectors for the benchmark were Health Care, Financials and Industrials; whilst the worst performing sectors were Real Estate and Consumer Discretionary.
Further, the Fund’s top performing stock was also Wirecard. There were no significant detractors over the month. The Fund sold the remainder of its position in Shire and switched it into Takeda. Please refer to last month’s commentary for more details.
The investment team maintain their cautious view; concerned about risk assets given the overall tightening of global monetary stimulus; the strengthening of the US dollar and the impact of normalising interest rates on Emerging Markets. According to the Investment Adviser, the economic system is highly leveraged and subject to shocks which are starting to appear.
The investment team continue to have a strong preference for defensive portfolio positioning in this current environment.
*EUR I Class
The views and statements contained herein are those of Lofoten Asset Management in their capacity as Investment Adviser to the funds as of 17/08/18 and are based on internal research and modelling.
For detailed performance information based on complete 12-month periods since inception, please refer to the funds factsheets, which are obtainable from https://eisturdza.com/funds/fund-documents.