BY ERIC STURDZA
The month of July was generally positive for the US Equity market, with the S&P 500 delivering +1.97% and the Fund +2.69%.
With Greece finding an ephemeral solution and the Chinese stock market stabilizing, volatility came down and the 1-month forward looking volatility index VIX sunk back to lows.
On the economic front, the GDP publication gave additional granularity on the country’s current dynamics, with healthy strength from the US consumer unfortunately more than offset by federal government spending, inventories and business investments, leading to a lower than expected preliminary Q2 growth number. The Federal Reserve applied few changes to its language, with minor adjustments to its tone generally perceived by the market as indicative of greater optimism. Some members of the committee later did reiterate the perceived appropriateness of raising rates in 2015 but refrained on providing additional specifics.
The corporate calendar was also full during the month, with numerous second quarter earnings publications, including many by the Fund’s portfolio companies. Generally, U.S. firms outside of energy reported above consensus, with the usual caveat of strong margins offsetting slow revenue growth. With a few soft publications from the more cyclical corner of the portfolio (railways, some industrials), the Fund’s investments showed strong performances, with companies such as Constellation Brands, Blackrock, Valeant, Skyworks, Universal Health Services or NXP Semiconductors handily beating earnings expectations and reaffirming or raising their views of the future. Google was arguably at the top of the pack in terms of shareholder enthusiasm, with earnings beating expectations on stricter cost controls and solid revenue growth, and especially pleasing analysts with a new CFO whose tone suggests more investor friendliness and cost sensitivity.
While international macro concerns linger, especially around China’s economic trajectory, the Investment Adviser remains convinced of the current portfolio’s attractiveness, populated by leading companies with multi-year growth runways, at valuations (similar to market averages) suggesting highly attractive prospects and compelling risk/rewards.
The views and statements contained herein are those of Sturdza Private Banking Group in their capacity as Investment Advisers to the Fund as of 10/08/15 and are based on internal research and modelling.