September Update: Weight Problem?

The Strategic Europe Quality Fund returned -0.24% in September, underperforming its index by 4%. Most of the underperformance thereby came from sector allocation rather than stock selection, namely the Fund’s relative overweight to the Consumer Staples sector and the Health Care sector as well as the Fund’s zero weight to the Financials sector. Stock selection for the Consumer Staples sector was also negative.

Monthly Fund Commentary
25 Oct 2019

The Strategic Europe Quality Fund returned -0.24% in September, underperforming its index by 4%. Most of the underperformance thereby came from sector allocation rather than stock selection, namely the Fund’s relative overweight to the Consumer Staples sector and the Health Care sector as well as the Fund’s zero weight to the Financials sector. Stock selection for the Consumer Staples sector was also negative.

Generally, the Investment Adviser believes that in times of a share rotation in markets from defensive sectors to more cyclical sectors the Fund will underperform in the short-term. This said, the team has not changed the portfolio’s positioning as a result as they do not believe this rotation will last for long. The best performing sectors for the index over the month were Financials, Energy, and Real Estate; while Consumer Staples, Health Care and Consumer Discretionary were the worst performing sectors.

At a single stock level the top monthly performance contributors for the Fund were Sanofi, Safran and Sophos, while the worst performers were Unilever, Essity and Pernod Ricard.

The Strategic Global Quality Fund returned -0.90% in August, underperforming its benchmark by 3.03%.

Similar to the Strategic European Quality Fund, Consumer Staples was the largest detractor to alpha both due to the Funds relative overweight to the sector but also due to stock selection. The Fund’s zero weight to the Financials sector also hurt relative performance. In addition, stock selection for the Information Technology sector also constituted a small drag. As for the Strategic Europe Quality Fund, the Investment Adviser did not changed the portfolio’s positioning as a result of the rotation. The best performing sectors for the index over the month were Financials, Energy and Utilities; while Health Care, Communication Services and Consumer Staples were the worst performing sectors.

In terms of contribution to return, the best performing stocks for the Fund were Procter & Gamble, Safran and IFF; while the worst performers were Unilever, Visa and Nestle.

The Investment Adviser’s macro view has remained consistent this year, with all the data and developments confirming their cautious view of the world. The team believe that there is more volatility to come and so will continue to maintain their defensive portfolio positioning.

 

The views and statements contained herein are those of the Eric Sturdza Group in their capacity as Investment Advisers to the Funds as of 11/10/2019 and are based on internal research and modelling.