Portfolio manager’s comments

March 2018

The global macroeconomic landscape remained positive, with strong job creation figures and contained wage growth in the US in February. Revised fourth quarter 2017 GDP was up, and the Federal Reserve (Fed) improved its growth outlook for both this year and next (2.7% in 2018 and 2.4% in 2019). Meanwhile, the eurozone closed 2017 with its best GDP growth for a decade, at 2.3%. Harmonised eurozone inflation in February remained moderate at +1.2%, and confidence indicators point to continued economic growth. As for the emerging markets, we would highlight the recovery underway in Brazil, which has now left behind two years of negative economic growth.

With regards to monetary policy, the Fed raised rates by 25 basis points to the 1.50%-1.75% range and confirmed plans for up to a further three hikes in 2018. The European Central Bank (ECB) continues to hold official rates at 0% and is keeping its asset purchase programme in place until September this year or even later, if necessary. It has, however, dropped its commitment to expand its bond purchases should the current economic performance falter, thanks to its stronger confidence in the sustained adjustment in inflation.

The main developments this month were geopolitical in nature: Germany now has a new social democrat-conservative coalition government with Angela Merkel at the helm for her fourth consecutive term. On the other hand, Italy is struggling to form a stable government after the 5Star Movement won the general election without an outright majority. However, the harshest impact on market performance stemmed from fears around the introduction of protectionist measures by the Trump administration, as the US announced tariffs on imported goods and China hit back with tariffs on US goods.

This escalating trade conflict was responsible for most of the ground lost by global stock markets. The losses were consistent and affected developed and emerging market equities alike. Dissipating fears of an uptick in inflation, the confirmation of the gradual tapering of stimulus measures in the eurozone and the flight towards quality following the recent increase in trade tensions all benefited high-rated sovereign debt. Spanish sovereign debt outperformed following the rating upgrade, with the 10-year bond yielding 1.15%, narrowing the sovereign credit spread versus the German benchmark to 66 basis points.

March International – March Vini Catena

In March, the March International – March Vini Catena A EUR fund returned -3.28%, compared with -2.61% for the MSCI World LC. Year to date, the fund is down -4.13% versus a loss of -2.73% for the index.

The most heavily-weighted sectors in the portfolio are distilled spirits, wines, distribution 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 Crimson Wine Group, followed by Barón de Ley and Aeroports de Paris, while Liquor Stores, Treasury Wine Estates and Boizel Chanoine Champagne were the names that contributed the least to the portfolio’s performance.

The portfolio remained stable, with no major changes.

March International – The Family Businesses Fund

In March, the March International – The Family Businesses Fund A EUR returned -2.96%, compared with -2.61% for the MSCI World LC. Year to date, the fund is down -4.44% versus a loss of -2.73% for 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, Switzerland and the US. The stock that contributed the most over the month was Robertet, followed by Savencia and Estée Lauder, while eDreams, Oracle and Sonae were the names that contributed the least to the portfolio’s performance.

The strong performance of Robertet, which has emerged unscathed from the market correction, allowed us to slightly reduce its weight in the portfolio and take some of the profit accumulated. We also continue to build the position in Sodexo.

March International – Valores Iberian Equity

In March, the March International – Valores Iberian Equity A EUR fund returned -3.55%, compared with -2.44% for the Ibex 35. Year to date, the fund is down -3.10% versus a loss of -4.42% for the index.

The most heavily-weighted sectors in the portfolio are industrials, consumer discretionary and financials. The fund’s exposure to Portugal was held steady at 16.8% The stock that contributed the most over the month was Laboratorios Almirall, followed by Merlin Properties and Inmobiliaria Colonial, while eDreams, Bankinter y Bankia were the names that contributed the least to the portfolio’s performance.

We took advantage of the market correction to increase our position in Dominion, which saw its share price drop after CIE Automotive exited its capital through a dividend in kind paid out to shareholders. We also significantly reduced our investment in eDreams following the announcement that there would be no changes to its main shareholders.

March International – Torrenova Lux

In March, the March International – Torrenova Lux A EUR fund returned -1.16%. Year to date, the fund is down -1.92%.

We kept equity exposure above neutral levels (23.7% at the end of March) as the markets continued their correction and allowed us to identify attractive investment opportunities.

The trade war sparked by the US with China sealed the fate of the markets in March. The ongoing market correction has allowed us to take positions in Dutch bank ING, which is trading at attractive ratios and boasts robust capital levels, a leadership position in the digital banking model and a pan-European footprint with a strong presence in Benelux. We also opened a position in Inditex to take advantage of its weak share price. The company’s business model is increasingly digital, with more limited future growth in physical stores, which will provide for lower capex levels and greater cash flow generation going forward.

The investment in fixed income was impacted by the widening spread between credit and sovereign debt. This shift was not offset by the strong performance of sovereign debt, and as a result, this component of the portfolio negatively impacted overall portfolio performance. Even so, portfolio yield stands at 0.60%, slightly higher than last month, and duration is currently 1.04 years.

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This document is for information purposes only.

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

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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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