Portfolio manager’s comments

May 2018

Political uncertainty in Italy and Spain garnered market attention in May. In Italy, whilst initial attempts to form a coalition government between the populist 5 Star Movement and far-right Northern League were unsuccessful, an agreement was eventually reached with Italian President Mattarella to allow a government to be formed. In Spain, a no-confidence motion was successfully passed by new PM Pedro Sánchez. The Trump administration also exacerbated tensions by announcing the US’s withdrawal from the nuclear deal with Iran, signed in 2015. Its goal is to seek a new deal with far more restrictive terms in place. The US also announced tariffs on aluminium and steel imports from the European Union.

In terms of monetary policy, the Fed left interest rates untouched in the US, confirming the increasing strength of the labour market, the moderate upturn in economic activity and the upward trend in inflation, which is nearing its target level. In the emerging markets, all eyes were on Argentina, where the central bank had to hike rates to 40% in a bid to stem the peso’s downward slide, even after formally requesting IMF aid, and on Turkey, which raised rates by 300 basis points to 16.5% in an attempt to stop the depreciation of the Turkish lira.

The macroeconomic landscape remained positive, particularly the strong indicators coming out of the US. However, eurozone inflation readings for May, under pressure from rising oil prices, generated uncertainty over the future. Brent crude prices rose again in May to $77.5 a barrel, up almost 30% over three months to four-year highs. These climbing prices were underpinned by the withdrawal by the US from the Iran nuclear deal, the drop in production in Venezuela and the possible extension of the OPEC-Russia agreement on output cuts.

May was a mixed month for European equities; political uncertainty hit the Italian MIB and the Spanish IBEX hard, as the weak euro and pound sterling buoyed the DAX and FTSE. It was a good month for the US indices, spearheaded by the tech sector. Emerging market equities closed down, with a major setback for the Brazilian market in particular. On the fixed income side, the lack of political consensus in Italy generated tensions for peripheral debt. The contagion effect on Spanish bonds was contained despite the no-confidence vote, whilst German Bunds and US Treasuries provided safe havens from political uncertainty.

March International – March Vini Catena

In May, the March International – March Vini Catena A EUR fund returned +0.76%, compared with +0.95% for the MSCI World LC. Year to date, the fund is down -0.65% versus a loss of   -0.03% 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 Remy Cointreau, followed by Diageo Plc. and Deere & Co, while Treasury Wine Estates Ltd, Baron de Ley and Marie Brizard 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 May, the March International – The Family Businesses Fund A EUR returned +0.96%, compared with +0.95% for the MSCI World LC. Year to date, the fund is down -0.65% versus a loss of -0.03% 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, Spain and the Switzerland. The stock that contributed the most over the month was Edreams Odigeo SA, followed by Remy Cointreau y Biomerieux SA, while Ashmore Group, Thai Beverage Public Co Ltd and Marie Brizard were the names that contributed the least to the portfolio’s performance.

The portfolio remained stable, with no major changes.

March International – Valores Iberian Equity

In May, the March International – Valores Iberian Equity A EUR fund returned -0.57%, compared with -5.16% for the Ibex 35. Year to date, the fund is down -0.14% versus a loss of –5.76% 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 about 17.2%. The stock that contributed the most over the month was Semapa, followed by Grifols e Inditex, while DIA, Telefonica SA and Bankia SA were the names that contributed the least to the portfolio’s performance.

We did not include any new firm to the fund, but we have adjusted some certain existing holdings´ weights taking advantage of market movements, and given the interesting price levels. For that reason we have raised our exposure to Bankinter and Euskaltel and, on the other hand, we have decreased exposure to eDreams and Bankia, as there would be no changes in its controlling shareholders in the former, and given some changes in its investment thesis in the latter.

March International – Torrenova Lux

In May, the March International – Torrenova Lux A EUR fund returned -0,93%. Year to date, the fund is down -1,56%.

We decreased equity exposure slightly, to the region of 22.9%, coming from levels of 24.4%.

We took advantage of the latest market drops to increase our exposure to ING and Inditex, given the interesting price levels they show, as well as to start building positions in Reckitt Benckiser for the same reason.

On the other hand we have reduced exposure to firms like EON, EXXON, BNP Paribas and Orange, and we have totally sold positions in Snam, Daimler and Roche.

In fixed income, we continue to like floating rate notes, credit and peripheral sovereign debt. Portfolio yield stands at 0.70%, slightly higher than last month, and duration is currently 1.15 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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