Managed since December 2014 by the same manager and with the MSCI North America Index as a benchmark, the fund invests in attractive US companies with sustainable dividend yields.
Is managed by a highly experienced and top performing value manager
Adopts a disciplined value style with a distinctive quality overlay
Offers lower risk than the broad market with low correlations to other US funds
December 2018 - Latest commentary
US markets had a very difficult December, falling by more than 9%, wiping out all the gains to this point and thus finishing the year with mid-single digit losses. This was the first negative year since 2008. Technology and healthcare, the best sectors throughout the year, led the markets’ decline along with financials. Although sectors such as utilities, materials and consumer staples held up relatively well, they too still declined.
There was a similar environment in the bond markets- US 10-year treasury yields fell back down to 2.7% from 3% over the month. The US dollar weakened slightly by around 1.5% but remained up mid-single digits for the year. Oil continued to tumble, down another 10% having lost as much as half of its value in the previous two months. This resulted in energy finishing as the worst sector for the year.
Interestingly, growth outperformed value in the month of December, falling by around 1% less than value during the decline. This capped the second consecutive bad year for value against growth. While in 2017 in a strong market advance value ended up participating, albeit timidly (up 13% vs. 20% for the markets), the year 2018 witnessed a rare occurrence in that the markets’ decline was led by value. The style ended down 9%, with growth down less than 2%, a differential of 7% to add to the 16% outperformance of growth in 2017. Over the past five years growth has now outperformed value by 30%, and over ten years by 125%.
The fund outperformed the markets in December, despite value benchmarks underperforming the broader market. The portfolio ended the year with an average portfolio dividend yield of more than 3.7%, a peak for the year and at more than 150bps above the market’s level, a historically attractive differential. Other valuation metrics also showed highly attractive discount differentials. Price to earnings and price to book are both over 35% cheaper than the market. On a price to sales basis, the discount, at more than 65%, highlights the value characteristics. This was coupled with an average leverage which was around 45% lower. These discount levels are reaching extremes not seen since the dotcom boom. With investors rightly concerned over the narrowness of returns this year, and valuations implicit in this group of companies, a change in market leadership is likely to prove very beneficial to the relative performance of this fund.
Previous months’ commentaries are contained within the fund factsheets.