Portfolio manager’s comments

August 2018

The tension in emerging economies such as Turkey and Argentina, the negative performance of the Italian markets and the favorable development of the U.S. stock exchanges were the most noteworthy points in August.

In Turkey, the uncertainty derived from the personalist government of Recep Tayyip Erdogan and the diplomatic and commercial dispute with the U.S. made a dent in the turkish lira, which closed August in historical lows. In Argentina, the concern of the markets in the approach to the IMF for an exceptional access Stand-By Arrangement dragged the peso by -25%, whilst the Central Bank hiking rates twice in the month, to the 60%. Meanwhile, the U.S.-China trade dispute developed with Trumps threats of an extension of tariffs on asian products and the more conciliatory tone of the new round of negotiations, with no specific outcome. On the positive side we find the announcement of a preliminary trade agreement between the U.S. and Mexico, which Canada could entry to and thus replace the current North American Free Trade Agreement.

The Equity had a mixed performance, with excellent development of S&P and the Nasdaq tech, supported by good macro data (economic dynamism continued in the U.S., highlighting the review of annual GDP to 4.2%, the highest rate in four years), a historical season of results and the trade agreement with Mexico. Meanwhile, in Europe, it was noticeable the uncertainty associated with the commercial war, the difficulties to close an agreement on the Brexit and the defiant tone of the Italian Government with the EU and its difficulties in closing the budgets. In emerging markets, the turkish crisis affected the emerging MSCI, specially Brazil’s important setback associated with the uncertainty of the upcoming elections in October.

As for fixed income markets, bad monthly performance for the peripheral markets, especially the Italian, justified by the possible increase of the public deficit, the difficulties to draw forward the states budgets and the rumours, denied, of a request to support the Italian debt by the ECB.

 

March International – March Vini Catena

In August, the March International – March Vini Catena A EUR fund returned -1.52%, compared with +0.90% for the MSCI World LC. Year to date, the fund is down -2.23% versus +4.43% of the index.

The most heavily-weighted sectors in the portfolio are distilled spirits, distribution, wines and industrial machinery. By country, the fund’s investments are focused on France, the US and the UK. The stock that contributed the most over the month was CF Industries followed by Bucher Industries  and Treasury Wine, while Vina Concha, Takara Holdings and Thai Beverage were the names that contributed the least to the portfolio’s performance.

We have increased our position in Thai Beverage (1%), at a time when the group continues to digest the acquisition of 54% of competitor Sabeco (Saigon Beer Alcohol Beverage Corp), the largest beer producer from Thailand, for $4.8Bn. In the short term this has meant the downgrade on the part of Moddy’s, but the potential of the synergies that it will bring to the group makes the operation very interesting.

March International – The Family Businesses Fund

In August, the March International – The Family Businesses Fund A EUR returned -0.89%, compared with +0.90% for the MSCI World LC. Year to date, the fund is down -2.92% versus 4.43% of the 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 France, Spain and the Switzerland. The stock that contributed the most over the month was Berkshire, followed by Rational and Biomerieux, while Thai Beverage, Prosegur Cash and T. Hasegawa.were the names that contributed the least to the portfolio’s performance.

We have increased our position in Thai Beverage (0.3%), at a time when the group continues to digest the acquisition of 54% of competitor Sabeco (Saigon Beer Alcohol Beverage Corp), the largest producer of beer from Thailand, for $4.8Bn. In the short term this has meant the downgrade on the part of Moddy’s, but the potential of the synergies that it will bring to the group makes the operation very interesting.

March International – Valores Iberian Equity

In August, the March International – Valores Iberian Equity A EUR fund returned +0.10%, compared with -3.50% for the Ibex 35. Year to date, the fund´s return is +1.17% versus a loss of –6.42% for the index.

The most heavily-weighted sectors in the portfolio are industrials, consumer discretionary and financials. The stock that contributed the most over the month was Almirall SA, followed by Global Dominion y Logista, while Bankinter, Euskaltel SA and Semapa were the names that contributed the least to the portfolio’s performance.

We have invested in Jeronimo Martins (2% of the portfolio). Portuguese company focused on supermarkets, with 2/3 of its sales coming from Poland, and which has a quotation at attractive levels. After losing conviction in Dia we preferred to maintain exposure to the sector through this company, but not increase it.

We have increased our position in Inditex (0.8%).

We have reduced our position in CTT (2.5%) before publishing results anticipating that they will be negative. Later we saw that the market did not react badly to its results so we maintain 0.5% of the equity. Good behavior since May.

We have also reduced our position in Almirall (1%) since it has doubled the price of its share in one year. Also to be waiting for the review of analyst estimates after the acquisition of dermatological drugs Allergan (USA) in August.

March International – Torrenova Lux

In August, the March International – Torrenova Lux A EUR fund returned -0.85%. Year to date, the fund is down -1.78%.

We have slightly reduced equity exposure up to levels of 22.5% (coming from levels of 23.6% in July).

We have only invested in Bayer.

On the other hand we have reduced positions in Total, Archer Daniels Midland and in Procter & Gamble.

In fixed income we continue betting on floating bonds, credit and sovereign debt of peripheral countries.  The NAV result of this month is marked by the behavior of the market in general (performance of the economy, emerging markets and its influence on credit, Italy, etc.), having only one particular position that has had a significant negative impact in the portfolio, Casino.

We reduced the portfolio´s yield very slightly to levels of 1.06% (from 0.91% the previous month), with a duration of 0.97 years.

LEGAL DISCLAIMER

This document is for information purposes only.

The legal documents for the fund(s) referred to herein is available at www.cnmv.es<https://www.cnmv.es>, www.march-am.com<https://www.march-am.com> and www.bancamarch.es<https://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 external 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 legal documents available on the websites indicated above.

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