Portfolio manager’s comments

October 2018

In October, we witnessed the further decay of investor spirit, justified by the scarce progress in the trade war and mistrust of some emerging economies. Nor does it help the political uncertainty in Europe, where we continue without agreement on the Brexit after a new summit between the United Kingdom and the rest of the E.U. and with the European Commission, in an unparalleled event, rejecting the Italian budget for 2019 and requesting to its Executive a new document. To this, we must add that the rating agencies worsen and even lower the rating of the Italian public debt, close to “junk bond”.

The IMF slashed global growth forecasts for 2018 and 2019, up to 3.7%, in face of growing trade protectionism, the more intense hiking rates than expected, and emerging-related uncertainty.

As for monetary policy, the published records of the last meeting of the Federal Reserve confirm that rates will continue to hike (once again in 2018 and three times in 2019). On the other hand, the ECB maintains official rates at 0% while the Bank of Japan will continue with its bond-purchase program and the interest rate target for 10 years near 0%.

In this backdrop, Stocks and Bonds suffered almost widespread declines even though the economic cycle is still expansive and the season of results exceeds expectations.  The equity markets suffered significant setbacks in the month of October, which in the case of the S&P entailed its worst month since 2011, likewise, for the Nasdaq meant its worst October in 10 years. Similar development for the Japanese stock exchange, getting further from recent maxima. In Europe, the exports component of its main indexes, at a time of high uncertainty associated with trade war and pressure on bank accounts, justified some of the drops.  Meanwhile, in the emerging exchanges, it stands out the drop of China and the rebound of Brazil, after the electoral victory of Jair Bolsonaro with a promise of structural reforms.

Fixed income also failed to escape uncertainty: negative performance of emerging and American sovereign fixed income, in contrast to Germany’s best progress, shelter from Italian uncertainty. As for credit, worse performance for the issuers of worse credit rating.

March International – March Vini Catena

The return of March International – March Vini Catena A EUR was a -5.69% for the month of October, whereas MSCI World LC returned a -6.88%. Throughout the year the return of the fund stands at a -7% whereas the index stands at a -2.21%.

The sectors that weigh the most in the fund are distilled, distribution, wines, and industrial machinery. By countries, the Fund focuses its investments in France, the US, and the United Kingdom. The security that has contributed the most to the fund during the month has been Takara followed by CF Industries and Vertropack. The securities that have contributed the least to the return of the fund have been Marie Brizard, Treasury Wine, and Bucher.

The position in the following companies has been increased: Thai Beverage PCL (0.4%), Hawesko Holding (0.3%), Brown-Forman (0.4%), Alcanna INC (0.4%), Baron de Ley (0.3%), Tejon Ranch (0.2%), Vidrala SA (0.5%), Bucher Industries (0.4%), Owens Illinois INC (0.6%), Dufry Group (0.3%), Krones AG (0.5%), Majestic Wine PLC (0.3%) y Lanson (0.3%).

No sell has been made during the month of October.

March International – The Family Businesses Fund

The return of March International – the Family businesses Fund A EUR in the month of October has been -4.91% versus a -6.88% of the MSCI World LC. Year to date, the return of the fund stands at a  -8.98% and the index is -2.21%.

The sectors that weigh the most in the fund are the discretionary consumption, basic consumption and industrial. By countries, the fund focuses its investments in Switzerland, the United States and Spain. The security that has contributed most to the return of the fund has been Berkshire, followed by Robertet and Vertropack. The securities that have contributed the least to the return of the fund have been Marie Brizard, Schaeffler, and Prosegur Cash SA.

It has been increased the position in the following companies: Sodexo (0.3%), Prosegur Cash SA (0.4%), E-Dreams Odogio SL (0.3%), Salvatore Ferragamo SPA (0.3%) and Tecnicas Reunidas SA (0.3%).

No sell has been made during the month of October.

March International – Valores Iberian Equity

La rentabilidad de March International – Valores Iberian Equity A EUR en el mes de octubre ha sido de -8.45% frente a un -5.28% del Ibex 35. En lo que llevamos de año, la rentabilidad del fondo se sitúa en -8.38% y el índice un -11.45%.

The return of March International – values Iberian Equity A EUR in the month of October has been of -8.45% compared to a -5.28% of the Ibex 35. Year to date, the return of the fund is at 8.38% and the index a -11.45%.

The sectors that weigh the most are industry, basic consumption, and materials. The security that has contributed the most to the fund this month has been Almirall SA, followed by Naturgy Energy and Galp Energia. The stocks that have contributed the least to the return have been DIA Distribuidora IN, Indra Sistemas, and Naturhouse Health.

On the buying side, we have bought Árima (3.7%), Miquel y Costas (1.5%), Más Móvil (1.5%), Corporación Financiera Alba (1.5%) and PRIM (1.2%).

We have bought Árima for our confidence in its management, Although we are not in the same cycle moment, we hope it turns out to be a similar story as Aciare in offices’ real estate sector.

The buy of Miquel y Costas has been made by means of a block. After the drop in the sector, and specifically the company, we have deemed it as a good buy opportunity.

The investment in Corporación Financiera Alba attends to an opportunity by an interest discount after the bad performance during the last months.

PRIM is a Little Spanish company of orthopedic products. Anti-cyclical, family business and with net cash flow.

We have also made partial buys in Vidrala (2%), Danone (0.9%) and Carrefour (0.6%).

As far as sales, we have sold the total position of Inmobiliaria Colonial (changing it by Árima due to its greater exposure to subsector offices, the part that we like the most in the real estate) and CTT (sale before results thinking that they were going to be negative).

We have also sold part of our position in Bankinter (decrease of exposure when we knew about the first resolution of the Supreme Court), Telefónica (reduction in exchange for MásMóvil), Galp (approached target price and decided to reduce).

Other minor sales carried out during the month of October were: Red Eléctrica (0.9%), Viscofan (0.3%), Applus (0.8%), Dominion (0.7%), Naturgy (0.2%), Merlin Properties (0.2%) and Euskaltel (0.2%).

March International – Torrenova Lux

The return of March International – Torrenova Lux A EUR in the month of October has been a 1.61%. Year to date, return stands at-3.28%.

We have slightly increased Equity exposure to levels of 26.72% (from 23.91% in September).

We have made partial purchases in EON, Saint Gobain, ENEL, Prudential, Banca Intesa and Michelin.

On the other hand, we have not carried out sales in the last month.

In fixed income, the exposure to Italy is slightly reduced and the weight is lowered in corporate and financial bonds, especially for longer maturities, while the most defensive part of the portfolio is increased, considerably increasing the weight of the promissory notes.

The outcome of this month’s NAV continues to be marked by the performance of the market in general (economic performance, emerging markets and its influence on credit, Italy, etc.).

We increased very lightly the IRR of the portfolio to levels of 1.12% (from 1.04% the previous month), with a duration of 0.97 years.

March International – Bellver Lux

Luxembourg Fund launched the 16 of July of 2018 (mirror fund of Cartera Bellver S.I.C.A.V. S.A.).

The fund has a global mixed strategy, normally 50% of the portfolio tries to beat main Global Equities markets with a lower volatility, while the other 50% tries to deliver a yield spread higher than the Euribor.

The fixed income strategy is made in assets of public and private issuers, of higher solvency, with a maximum duration of 2 years. In equities, it invests in both national and American and European companies with solid fundamentals and attractive dividend yield.

The return of Cartera Bellver in the month of October has been a -4.76%. Year to date, the return stands at a -5.16%.

In fixed income, like with Torrenova, the exposure to Italy is slightly reduced and the weight in corporate and financial bonds is lowered, especially for longer maturities, while the most defensive part of the portfolio is increased, considerably increasing the weight of the promissory notes. In any case, we maintain a very significant credit exposure.

We increase slightly the equity exposure, which currently stands at a level of 56.34%.

The security that has contributed the most this month has been Ericsson, followed by Sony Corp and Cisco Systems. The ones that have contributed the least have been Heidelbergcement and Bayer.

We have made an initial investment in Alphabet.

And we have carried out partial buys in Quanta Services, Bombardier, DowDuPont, Prudential, Standard Chartered, Vodafone, AB InBev, Bayer, ING, HeidelbergCement, Saint Gobain and Michelin.

On the other hand, we have sold Ericsson

The IRR of the portfolio stands at 1.05%, with a duration of 1.02 años.

March International – Lluc Lux

Fund launched on July 16, 2018 (Mirror Fund of Lluc Valores S.I.C.A.V. S.A.).

The strategy aims to beat, in the long run, the major global stock markets with lower risk (volatility).

The equities exposure will be around 70% in normal market conditions, although there are no limitations.

The currency risk is hedged in the investment in equity, except for specific situations in which the currency acts as a natural hedge to market movements.

The return of Lluc Valores in the month of October has been of -7.74%. Year to date return is -6.80%.

The sectors that weigh the most in the fund are technology, energy, and public services. By countries, the fund focuses its investments in the US, France, and Germany. The security that has contributed the most to the fund during the month has been Ericsson, followed by Amazon and Sony Corp. The securities that have contributed least to the return of the fund have been Bayer, Standard Chartered and Heidelbergcement.

We have made partial purchases in Alphabet, Quanta Services, Bombardier, Intel, Samsung Electronics, Fanuc, DowDuPont, Prudential, Standard Chartered, Vodafone, AB InBev, Bayer, ING, Heidelberg Cement, Saint Gobain, and Michelin.

On the other hand, we have carried out sales in Ericsson and Cisco networks.

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The content of this document is purely informative.

The official documentation of the fund/s mentioned in this document are available in the web pages www.cnmv.es, www.march-am.com, and www.bancamarch.es

The client or interested person in the investment must be aware that this document is not an investment recommendation of March Asset Management, S.G.I.I.C, S.A.U and/or Banca March, S.A. The client or interested person it must make its own decisions taking into account these circumstances and obtain the specialized advice on tax, legal, financial, regulatory, accounting or any other type which, where appropriate, he may require.

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The client or interested person in the investment must take into account that past returns are not reliable indicators of the future results and that the risks concerning the fund/s mentioned in this document are described in the official documentation available in the aforementioned web pages.

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