Portfolio manager’s comments

May 2017

As we approach the halfway mark of 2017, the economic data emerging clearly confirms our outlook for an upturn in global economic growth. On an even more positive note, this increased economic activity has led to better corporate earnings, as evidenced by the substantially better-than-expected results posted by most companies in the first quarter results season.

With the fundamentals looking good, market uncertainty continued to focus on economic policy. Macron’s victory in the French elections will afford greater stability to the European project in the immediate future, rerouting any sources of uncertainty back to other regions outside the eurozone.

The key outcome of the current trend – decreasing political tension in the eurozone and improving growth forecasts for financial assets in the region – has been an appreciation of the euro, which gained 3.1% versus USD and 3.7% versus GBP.

In the commodities market, as expected, the OPEC members and a dozen other countries including Russia and Mexico have agreed to expand the oil supply cut until March 2018. Despite this announcement, Brent crude prices fell 2.7% in May.

The month brought further gains in the fixed income markets. Rising inflation outlooks have now slowed thanks to more stable energy costs, and the cautious stance of the main central banks also buoyed the bond markets. Peripheral sovereign debt outperformed, and the yield on 10-year Spanish government bonds fell to 1.55%. As for credit, both high yield and investment grade corporate bond indices registered gains.

The global stock markets also closed the month with gains overall, though performances varied by region. Emerging markets chalked up the largest gains with Asia in the lead, whilst Latin America lagged on the weak performance of Brazilian equities.

March International – March Vini Catena

In May, the March International – March Vini Catena A EUR fund returned 1.07%, compared with 1.15% for the MSCI World LC. Year to date, the fund is up 8.73% versus a gain of 7.18% for the reference index.

The most heavily-weighted sectors in the portfolio are distilled spirits, wines, industrial machinery and distribution. By country, the fund’s investments are focused on France, the US and Germany. The stock that contributed the most over the month was Marie Brizard, followed by Corticeira Amorin and Pernod Ricard, while Takara Shuz, Viña Concha y Toro and Tejon Ranch were the names that contributed the least to the portfolio’s performance.

The portfolio was kept stable again this month. We increased exposure to French company Marie Brizard after the drop in its share price in recent weeks. On the flipside, we cut our position in France’s LVMH after the stock’s recent performance drove it to high valuations.

 

March International – The Family Businesses Fund

In May, the March International – The Family Businesses Fund A EUR returned 0.59%, compared with 1.15% for the MSCI World LC. Year to date, the fund is up 11.45% versus a gain of 7.18% for the reference index.

The most heavily-weighted sectors in the portfolio are consumer discretionary, consumer staples and industrials. By country, the fund’s investments are focused on Switzerland, France and Germany. The stock that contributed the most over the month was Savencia, followed by Heineken and Axel Springer, while Helmerich & Paine, Salvatore Ferragamo and Sports Direct were the names that contributed the least to the portfolio’s performance.

We opened a position in Marie Brizard, a French spirits distributor, which is trading at very attractive levels. On the flipside, we cut our position in France’s LVMH after the stock’s recent performance drove it to high valuations.

We also raised our exposure to Luxótica and Oracle, and cut positions in Salvatore Ferragamo – prior to the drop in price – and Biomerieux.

We opened a position in Schaeffler, a German family company which manufactures rolling element bearings for the aerospace industry and components for automobile chassis. The company is trading at a discount versus its peers and is well positioned to take advantage of the structural change from combustion engines to hybrid and electric battery alternatives.

 

March International – Valores Iberian Equity

In May, the March International – Valores Iberian Equity A EUR fund returned 2.46%, compared with 1.53% for the Ibex 35. Year to date, the fund is up 13.59% versus a gain of 16.34% for the reference index.

The most heavily-weighted sectors in the portfolio are consumer discretionary, industrials and financials. The fund has kept its exposure to Portugal at 13.1% through its positions in Corticeira Amorim, Galp, NOS, Sonae and CTT – Correios de Portugal. The stock that contributed the most over the month was CTT – Correios de Portugal, followed by NH Hoteles and Red Electrica, while eDreams Odigeo, Naturhouse and Bankinter were the names that contributed the least to the portfolio’s performance.

We maintained exposure to the financial sector but rotated the names within the sector: we sold off BBVA and Banco Santander and invested in Bankinter, which is more defensively positioned than the two larger banks and offers comparable upside potential.

We opened a position in Endesa on the back of the market correction; the stock is trading at attractive levels and offers dividend yield of 7%. We also added Abertis to the portfolio, given the likelihood that Atlantia will up its bid Price.

 

March International – Torrenova Lux

In May, the March International – Torrenova Lux A EUR fund returned 0.14%. Year to date, the fund has returned 1.23%, in line with its target of preserving capital and beating inflation plus 2%.

Equity exposure remains neutral at around 20%.

Changes to the portfolio were minimal. We raised the position in Banca Intesa, which is lagging behind its European peers due to uncertainty around potential early elections in Italy and the sale by Generali of the 3% it bought when the bank was considering launching a takeover bid for the insurer. We also upped the weighting of Teva Pharmaceutical, which has struggled year to date, Exxon, which is set to benefit from a hike in oil prices, Procter&Gamble and Dow Chemical. On the other side of the ledger, we pared back our exposure to Michelin, LVMH and Carnival on the back of strong performances by all three.

In fixed income, we kept the current portfolio positioning with moderate durations of around 0.9 years and a yield of 0.29%.

 

 

 

LEGAL DISCLAIMER

This document is for information purposes only.

The official documentation for the fund(s) referred to herein is available at www.cnmv.es, www.march-am.com and www.bancamarch.es.

Clients or prospective investors should bear in mind that this document does not constitute an investment recommendation by either March Asset Management, S.G.I.I.C., S.A.U. or Banca March, S.A. Clients or prospective investors should base their investment decisions on specialist third-party tax, legal, financial, regulatory, accounting advice, or any other form of counsel, as appropriate.

Neither March Asset Management, S.G.I.I.C., S.AU. nor Banca March, S.A. take responsibility for any direct or indirect costs or losses resulting from the use of this document or any actions undertaken based on its content.

The client or prospective investor should be aware that past performance is not a reliable indicator of future results and that the risks related to the fund(s) referred to herein are outlined in the official documentation available on the websites indicated above.

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