The completion of 30 June marks the second anniversary of the Montgomery Global Fund (The Fund). The Fund delivered a return of 19.85 per cent, net of fees to 30 June 2017. This was significantly ahead of the MSCI Total Return Index in Australian dollar terms (the Benchmark) which returned 14.74 per cent over the same period.
Since inception, The Fund has delivered investors a return of 21.02 per cent, net of fees, versus the Benchmark which returned 14.08 per cent over the same period. The Fund has averaged around 20 per cent in cash holdings since its inception which, in our view, enhances the quality of the return profile we have achieved for our investors.
On average since inception, The Fund has captured approximately 100 per cent of the market gains in a month in which the Benchmark increased; but has borne only approximately 75 per cent of the market loss in a month in which the Benchmark decreased. These attractive characteristics have been achieved through: (i) the buying of high-quality businesses only when they are undervalued; and (ii) the strategic holding of cash when the opportunity set has thinned. Please read our Annual Letter to expand on these comments.
The total distribution for the year was 12.0993 cents per unit.
The 2017 financial year was kind to global equity investors. And this kindness really stemmed from the final eight months of the year since President Trump’s election victory last November. Not only did these eight months drive 82 per cent of the aggregate annual return of the Benchmark, they did so with unusually low variability.
Global monetary conditions remained highly accommodative, Chinese fiscal stimulus remained in full force and the Republican triple-sweep in the US election provided the markets with fresh anticipation of new fiscal stimulus. As if this were not enough, President Macron’s win in the recent French election removed a significant financial tail-risk associated with a potential referendum on France’s membership in the European Monetary Union.
We manage a global portfolio that is selectively-diversified across industries, regions, currencies and capitalisations. Investors will know that we monitor global economic and political developments closely as there are times when these can have far reaching consequences for entire industries, countries or asset classes. That said, we remain first and foremost bottom-up fundamental investors – with each business in our portfolio underpinned by a research-intensive fundamental thesis.
Preserving capital wherever possible remains a primary focus for the Montgomery Global Fund. We understand the powerful role that loss-avoidance plays in wealth-accumulation. As we look to the future, we foresee several risks that require prudence on the part of the investor that we detail in the Annual Letter here.
Because of these observations, The Fund enters the new financial year holding nearly 25 per cent in cash. In terms of currency exposures, The Fund enters the new financial year with more than 50 per cent exposure to the US dollar and nearly 30 per cent exposure to the Euro and Pound Sterling.
No one knows what the future year will hold. But a repeat of the highly-consistent last eight months is unlikely, in our view. What is more likely is a return to volatility. And while volatility can be uncomfortable, for the prepared investor, it can be a period of terrific opportunity.
Thank you for your support for the Montgomery Global Fund in FY2017. We appreciate the opportunity to work for you, and we look forward to continuing our investment partnership through FY2018 and the years that follow.
By Andrew Macken (Portfolio Manager) & Christopher Demasi (Portfolio Manager)
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