Global Value Equity Fund

Investment involves risk. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Overview

Manager's Outlook

Investors have had to radically reappraise their outlook for the paths of interest rates and inflation, and the accompanying impact on markets and economies. As we noted earlier in this report, over the last nine months or so by increasing the allocation to more defensive parts of the value universe we have implemented a more balanced profile in the portfolio, and we believe that this is currently appropriate given the current material uncertainties. Valuation spreads in the marketplace remain reasonable and relative valuations of value versus growth are relatively attractive versus history, but both suggest a more subdued value opportunity set than the abundant situation of one-to-two years' ago. There may also be scope for market worries on rates and inflation to subside somewhat.

A changed landscape is possible over the next decade ? materially higher levels of capital expenditure may be required to address the capacity requirements in many industries as a result of both the desired decarbonization of industries and economies as well respond to threats posed to supply chains, specifically in energy but also more broadly as "deglobalization" may well continue. Further, governments may be more willing in engage in higher levels of fiscal spending to meet future economic shocks and fulfil a social agenda, and electorates have seen how effective such spending can (appear to) be within the pandemic. This combination of both higher capex and fiscal spending is likely to be beneficial, in our view, not only to many value-oriented companies but is also likely to put ongoing upwards pressure on inflation and interest rates.

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In the U.S., we continue find opportunities in well-run, quality companies but are mindful of valuations. The health care sector provides ample strong ideas for the long-term. European economies have been more deeply impacted by Russia's invasion of Ukraine and we find more dislocation in these markets. Fiscal stimulus measures continue to be rolled out and monetary policy remains accommodative. Plans are progressing for the Next Generation European Union (EU) Fund, which aims to support EU member countries in their recovery from the impacts of the pandemic. We continue to find opportunities in companies with more cyclical characteristics, which we believe stand to emerge on the other side of the pandemic in positions of strength, as well as defensive names that offer some level of protection in a market downturn.

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We have become incrementally more cautious on the near-term outlook for Japan but remain optimistic. There has been significant fiscal stimulus response to aid the economic recovery. Crucially for investors in the market, corporate governance in Japan has been improving in recent years, with companies becoming more shareholder friendly. We continue to identify stocks with compelling valuations befitting of our value perspective.

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Elsewhere in Asia, we continue to uncover ample compelling opportunities in China's broad market, despite market setbacks in recent months. Concerns over regulatory developments, on-off domestic movement restrictions, and continued strict restrictions on international travel, have all weighed on stock prices in recent months. However, our well-resourced research team finds plenty of opportunities in good companies with compelling valuations.

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We concentrate on the bottom-up view and our strategy continues to invest across the value spectrum in the best ideas from our global research platform. We aim to balance our exposure to economically sensitive and "deep value" names; also holding companies with strong free cash flow generation not yet fully appreciated by the market and with the scope to increase shareholder returns; as well as looking for pockets of controversy where fundamentally sound, well-run businesses face unwarranted investor skepticism. Given our robust research platform and collective experience, we are confident in our ability to find these unique opportunities before their potential for substantial prosperity becomes obvious to other investors.

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Strategy

Fund Summary

Actively managed and invests mainly in a widely diversified portfolio of undervalued shares of companies (i.e. shares of companies which the Investment Manager considers are inexpensive relative to the market, peers, and the shares’ own history) anywhere in the world, including emerging markets.

Performance - Net of Fees

Past performance is not a reliable indicator of future performance. Performance returns are calculated on a NAV-NAV basis, net of fees, with distributions reinvested. Returns for the current year performance is cumulative. Benchmark returns are shown with reinvestment of dividends after the deduction of withholding taxes. The Excess Returns are shown as Fund % minus the Benchmark %. Performance returns for share classes less than 1 year old (and associated benchmarks) are cumulative rather than annualised.

30-Nov-2023 - Sebastien Mallet, Portfolio Manager,

Global equities gained in November as inflation eased, largely in Europe and the US, which raised hopes that interest rates may be near their peak. In the US, the Federal Reserve held its benchmark rate steady for the second consecutive meeting. Within the portfolio, stock selection and our above-benchmark positions in health care and energy dragged on relative performance. In health care, shares of a global medical technology company retreated after its earnings forecast for 2024 fell short of investor expectations, which was attributed to broader macroeconomic headwinds and inventory adjustments. However, we believe that the company will see better performance and its defensive business mix could provide multiple tailwinds against a tough macroeconomic environment. In contrast, stock choices in information technology (IT) added value, although the gains were largely offset by our underweight allocation. At the country level, our holdings in the US, the UK, and Japan hurt relative performance. Conversely, our off-benchmark positions in Brazil, South Korea, and Vietnam helped. In South Korea, shares of a memory chip maker gained after it reported encouraging third quarter earnings amid improved demand in its memory chips as well as its smartphone and tablets segment.

30-Nov-2023 - Sebastien Mallet, Portfolio Manager,

We adopted a balanced profile in the portfolio over the last year or so by adding to more defensive parts of the value universe. The remainder of the portfolio is devoted to more cyclical and deep value companies. This approach is most appropriate given the ongoing material economic uncertainties, in our view. With this in mind, we have relative overweight positions in financials as well as the traditionally more defensive health care and utilities sectors. In contrast, we remain underweight in information technology and consumer discretionary.

30-Jun-2022 - Sebastien Mallet, Portfolio Manager, Global Value Equity Fund,

We eliminated the holding in U.S.-based Huntington Bancshares, a diversified large regional bank as we felt the valuation was beginning to price in higher interest rates. The U.S. bank has one of the more cautious interest rate risk strategies amongst peers.
We sold out of our position in Equitable Holdings, a large financial services company whose main business is life insurance. Although U.S. insurers as a group still have good pricing power and will likely benefit from higher interest rates, the sector was looking expensive in our view. In addition, we had concerned that Equitable is very sensitive to equity market movements.
We used part of the proceeds of these sales to purchase a position in Ping An Insurance Group, the largest insurer in China by market capitalization. The company trades at a very low valuation in both absolute terms and on a historical basis following a sharp decline in value of new business (VNB) in 2019.� Our investment thesis is that VNB will gradually accelerate within the next three-to-five years, which should drive a re-rating of the stock.
We bought a position in Johnson & Johnson, a diversified health care company engaged in the development, manufacturing and sale of pharmaceuticals, medical devices, and consumer health care products. Its share price has de-rated due to the ongoing mix shift towards pharmaceuticals. However, the majority of its key franchises have begun to show significant recoveries from the impact of COVID-19 and we expect this trend to continue.
Sanofi is France-based diversified multinational health care company, which is engaged in the development, manufacturing and sale of pharmaceuticals, vaccines, and over-the-counter (OTC) health care products. Sentiment towards the name has been held back recently by disappointing trial results from its drug to fight breast cancer, leading investors to question Sanofi's R&D capabilities. We initiated a position in Sanofi as we believe the company has a number of promising drugs in the pipeline, including treatments for hemophilia and multiple sclerosis.
We largely funded these purchases through our elimination of Roche Holding; we believe the company is fully valued at present and it has a number of drugs going off-patent within the next few years.
We initiated a position in FPT, a Vietnam-based IT services company. The Vietnamese stock market fell sharply in April and May and we felt some valuations had reached attractive levels. We believe the company's long-term growth potential is materially better than what current valuation multiples imply. Country-specific factors support the company, in our view, driving a cost advantage versus global competition and favorable pricing for its customers. Vietnam also hosts an IT-relevant labor pool that is undergoing rapid development which is, in turn, key to the company's growth runway.
Broadcom is a U.S.-based semiconductor company that makes products for the�wireless and broadband communication industry. We bought a position in the company because the stock offers an attractive free cash flow yield and, in our view, the company's earnings durability and growth are underappreciated by the market.
We eliminated the holding in Keisei Electric Railway. We had bought the stock on expectations of meaningful capital allocation changes among Japan's railway companies, but this investment thesis has not played out and we cut our position to invest in more compelling opportunities elsewhere.
We sold out of our position in Panasonic. Our investment case was for it to increase its electric battery (EV) capacity and for this business to become a significant profit contributor. However, this turnaround has not taken place and we believe the pace and magnitude of the EV battery business expansion is unlikely to be as good as we previously believed. We exited our position.

30-Jun-2022 - Sebastien Mallet, Portfolio Manager, Global Value Equity Fund,

The portfolio's performance was boosted by the holding in Tongcheng Travel. The company's most recent results pleased investors, beating consensus expectations. Longer term, we continue to like company as we believe it is in a strong position to capture the rapid growing travel demand of users in lower-tier cities in China. In our view, current expectations for the reopening of the economy are low and that the risk-reward profile for the name from here is attractive.
Our avoidance of Amazon was also beneficial to relative returns as shares in the online retail giant dropped sharply.� Investors were concerned by both weak quarterly results and disappointing guidance.
Shares in global internet conglomerate Prosus rose strongly over the quarter. In previous months, the stock had been weak, reflecting to a large extent the fortunes of Tencent, the China-based IT conglomerate of which it is a major shareholder. Shares in the latter had come under significant pressure over the period on fears of further regulatory tightening by Chinese authorities, sending the shares to historic lows.
Our holding in UnitedHealth Group was beneficial. Having underperformed in 2021 as investors focused on growth names and uncertainty about health care reforms, shares in U.S.-based managed care company outperformed over the review period.� Investors were encouraged by strong earnings growth and raised guidance.
AstraZeneca was another outperformer over the quarter. The market was encouraged by quarterly earnings and revenues, which both came in ahead of consensus expectations. Forward guidance for the full year was reiterated, further reassuring investors.
Having no exposure to Nvidia served the portfolio well. The software and semiconductor company derives a substantial proportion of its revenue from its semiconductor chips used in consumer-oriented markets, particularly gaming, which are showing signs of weakness.
Shares in L3Harris Technologies outperformed both its sectoral peers and the broader benchmark index over the quarter. The company pleased investors with quarterly earnings which beat expectations, driven by stronger margins, and a maintenance of full-year guidance. L3Harris is engaged in the provision of defense and commercial technologies across the air, sea, space, and cyber domains, with the majority of its sales to the U.S. government, with approximately 20% of sales to commercial and other customers. As a technology-centric company, we believe it stands to be a beneficiary of the Department of Defense's prioritization of heavy investment in technology and connectivity.
Yangzijiang Shipbuilding was another key contributor to relative gains. Its shares were beneficiaries towards the general upswing in Chinese stocks over the period as well as growing hopes that global shipping demand will recover following a decade long bear market for the shipbuilding industry.
In contrast, our position in General Electric held back portfolio returns. A combination of macroeconomic pressures and supply chain issues led to downwards earnings revisions. Uncertainty around the upcoming split of the company into three separate entities focused on energy, aviation, and health care, also weighed on the stock.
Shares in Air Canada tumbled. The airline has struggled to recover from the pandemic-related slump in travel demand. More recently, rising fuel costs, fears that a slowing economy will lead to a cut in discretionary spending, and well-publicized flight delays and cancellation issues caused by staff shortages, have put fresh pressure on the stock.
The portfolio's position in Walmart hindered portfolio returns. The stock sold off sharply after the retailer released disappointing quarterly earnings, with the company citing a number of factors including higher wage expenses, fuel cost rises, and increased inventory. Investors were also disappointed by a cut in full-year profits guidance.

Risks

Typical Investor