Global High Conviction Strategy: November 2019 Commentary

Global equities rose in November about 2.5% in USD terms led by the USA market where the S&P 500 gained 3.4% in USD, and over 5% in AUD terms.

November

News flow was not particularly constructive with poor industrial production figures from major economies and additional complexity in the China USA trade talks introduced by a ‘Human Rights Bill’ being passed by Congress and signed into law by President Trump. Consequently, the trade bill wasn’t signed and is at best pushed back to mid-December.

So once again markets moved in the opposite direction from ‘fundamentals’ providing yet more evidence that timing market exposure is quite hard to get right and so we don’t do it. We have remained fully invested.

The GHC strategy rose over 3.5% % in USD terms and over 5.5% in AUD$.

Notable price moves in the month came from AES (a ‘boring’ utility) up 12%, Alibaba, a recent purchase on Hong Kong riot weakness, up more than 12%, and Discovery Channel up over 20% after some strong results and a clear reduction in their indebtedness incurred through the Scripps acquisition. It is part of our thesis that content will be very important as the proliferation in digital channels continues. Discovery has non scripted content (cheaper to make and accounting for a large part of viewing ‘eyeballs) in abundance.

We changed one position in the portfolio late in November. We sold Caterpillar after a strong share price rebound after poor results and poor guidance on their order book and reinvested by adding to Discovery Channel and into a new holding, Johnson Controls which is a USA based provider of hard and software for smarter buildings, with products that include energy saving air conditioning and fire detection. We still expect significant upgrades to USA infrastructure, and new buildings globally are also likely to require more efficient use of energy.

We remain biased to Value with a significant exposure to the USA and Japan. Long-term returns from global equities will be generated by the ability of our companies to deliver growing profits and dividends which look possible despite anaemic economic growth and political risk.