WCM Quality Global Growth August 2020 NTA Statement & Portfolio Update

We are pleased to provide you with a summary report on the performance of the WCM Quality Global Growth Strategy in August 2020.

Notes: 1. WQG, WCMQ and WCM Quality Global Growth Fund (Managed Fund) have the same Portfolio Managers and investment team, the same investment objective and use the same philosophy and strategy as the WCM Quality Global Growth Strategy. As WQG, WCMQ and WCM Quality Global Growth Fund (Managed Fund) have only been in operation for a relatively short period of time, this table makes reference to the WCM Quality Global Growth Strategy Composite (the Composite) to provide a better understanding of how the team has managed this strategy over a longer period. 2. Composite inception date is 31 March 2008. 3. Benchmark refers to the MSCI All Country World Index (with gross dividends reinvested reported in Australian Dollars and unhedged). 4. Value Added equals Composite Performance minus Benchmark performance. 5. Annualised

Returns include the reinvestment of income. Past performance is not indicative of future results.

The strategy is conveniently available in four investment structures to accommodate the differing preferences of individual investors. You can read the full investment update for each of these products on the links below:

The strategy delivered a return of 0.75% during the month, underperforming compared with the benchmark MSCI All Country World (ex-Australia) Index return of 2.94%. The strategy has delivered returns in excess of the benchmark over the previous three, six and 12 month periods, as well as over three, five, ten years and since inception.

The V shape recovery in global equity markets from their March 2020 lows continued in August. The 6% plus local currency return in global equities represented the strongest August for over 30 years. The strength in markets reflects growing investor confidence in the pace and scale of the policy response from governments and central banks to the COVID-19 pandemic.

While consensus estimates for 2020 global corporate earnings are still pointing to a decline of greater than 20%, the recent reporting season did lead to a marginal uptick in these forecasts. Federal Reserve chair Jerome Powell’s announcement of a move to target inflation was another positive factor for equity markets. Investors took this as a sign that monetary conditions are likely to remain looser for longer.

At a regional level, developed markets outperformed emerging markets, with the latter impacted by concerning COVID-19 case numbers in India, Brazil and Turkey. Consumer discretionary, technology and communication stocks continued to lead the way at a sector level. These sectors contributed to the continued outperformance of growth versus value factors too. The likelihood of ongoing lower interest rates in the US (referenced above) was behind further weakness in the US dollar. This in turn lead to a stronger return for currency hedged portfolios.

The relentless share price appreciation of the FAANG (Facebook, Apple, Amazon, Netflix and Alphabet) stocks has many market commentators making comparisons with the technology sector boom, then bust of the late 1990’s. Collectively these companies now represent over 20% of the US benchmark S&P 500 Index. Concern is growing that while they have been the major contributor to many ‘growth style portfolios’ outperformance, they may be reaching unsustainable valuation levels. The WCM Quality Global Growth strategy has in the past had exposure to each of these stocks. Each was purchased at a time when the WCM investment team could make a case that their competitive advantage (economic moat) was expanding. Each was subsequently sold despite continuing to meet most ‘great company’ definition criteria. A core tenet of WCM’s investment process is that only companies it believes are getting better (i.e. have an expanding competitive advantage) qualify for inclusion in the portfolio. Being ‘great’ isn’t good enough.

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