April update: Defensive portfolio positioning maintained

The Strategic Europe Value Fund returned 1.50% in April. The largest detractor to alpha was the Health Care sector, largely due to the Fund’s overweight to that sector. Exposure to the Financial sector also dragged on alpha; mostly due to the Fund’s relative underweight. Consumer Staples was the best performing sector for the Fund, driven by stock selection. The best performing sectors for the benchmark in April were Information Technology, Financials and Industrials; while the worst performing sectors were Health Care, Real Estate and Utilities.

Monthly Fund Commentary
20 May 2019

The Strategic Europe Value Fund returned 1.50% in April. The largest detractor to alpha was the Health Care sector, largely due to the Fund’s overweight to that sector. Exposure to the Financial sector also dragged on alpha; mostly due to the Fund’s relative underweight. Consumer Staples was the best performing sector for the Fund, driven by stock selection. The best performing sectors for the benchmark in April were Information Technology, Financials and Industrials; while the worst performing sectors were Health Care, Real Estate and Utilities.

During the month, the Fund sold its position in Novartis and bought Alcon after the Company was spun out from Novartis. The Fund also initiated a position in Essity, with the Company’s focus on cost efficiencies having been masked by two years of intense input cost pressure. As the pricing environment improves and input cost pressures abate, the Investment Adviser anticipates strong margin expansion and earnings growth, which the team think is currently not fully reflected in the share price.

The Strategic Global Quality Fund returned 2.96% in April. The only noteworthy detractor to alpha was the Fund’s zero weight to the Financial sector, with Health Care also constituting a small drag on alpha over the month. The Fund’s relative overweight to the Consumer Staples sector hurt alpha, with strong stock picking however offsetting this. The best performing sectors for the benchmark in April were Financials, Information Technology and Communication Services; while the worst performing sectors were Health Care, Real Estate and Utilities.

The best performing stock for the Fund was Microsoft, whereas the worst preforming stock was Takeda Pharmaceutical. There were no significant portfolio changes to report over the period.

2019 year-to-date has seen a sharp rebound in equity markets from the lows of December 2018. Markets responded favourably to the US Federal Reserve’s shift in policy, while the ongoing discussions between China and the US have added volatility, with no resolution as yet. Eurozone equities recovered for the same reasons; however concerns over economic growth and inflation continue to linger as per the latest ECB forecasts.

The Investment Adviser maintains their preference for defensive portfolio positioning, with their primary concern being the contraction of global liquidity. They expect to see further market volatility in the second half of this year.

The views and statements contained herein are those of Lofoten Asset Management in their capacity as Investment Adviser to the funds as of 15/05/2019 and are based on internal research and modelling.