Quarterly Fund Update - March 2021
Over the quarter, equity markets made further gains as the pace of vaccinations picked up. While allowing for the likelihood of unexpected setbacks over the short-term, we believe that the combined fiscal, monetary, and public health policies in place are revealing the path towards a more ‘open’ and normalised economy in the second half of 2021 and beyond.
The main driver of markets over the quarter was the relentless rise in the highly influential US 10-year government bond yield: from 0.92% at the end of December to 1.74% at the end of March. All else equal, higher interest rates drive higher discount rates, making far-in-the-future cash flows worth less than near-dated cash flows. The relatively benign market return over the quarter obscures the sharp rotation from ‘growth’ to ‘value’ that occurred under the surface.
Our relative performance for the quarter was largely driven by our underweight positioning in deeply cyclical businesses and sectors, which performed strongly as the outlook for the global economy improved. Given our preference for businesses that exhibit the financial characteristics we have labelled as ‘quality’ (high through-the-cycle returns on capital, strong cash generation, and a robust balance sheet), we are not surprised at the outcome. As we have previously communicated, it is exactly in-line with the expected return profile of the quality-focused investment strategy we adhere to.
To keep reading about performance, positioning and the actions the Fund took during the quarter, please download the full report.