We are pleased to provide you with a summary report on the performance of the WCM Quality Global Growth strategy in March 2020.
The strategy is conveniently available in three 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:
- WCM Global Growth Limited (ASX:WQG) (LIC).
- WCM Quality Global Growth (Quoted Managed Fund) (ASX:WCMQ) (ETMF).
- WCM Quality Global Growth (Managed Fund) (unlisted managed fund).
The strategy significantly outperformed the benchmark MSCI All Country World (ex-Australia) Index during March. The long-term performance of the strategy remains strong, with returns exceeding that of the benchmark over 6 months, 1-year, 2-years and since inception.
1. Portfolio performance is calculated after investment management and performance fees are paid. 2. Benchmark refers to the MSCI All Country World Index ex-Australia USD Gross Total Return Index reported in AUD and unhedged. Returns include the reinvestment of income. Past performance is not indicative of future results.
The performance of the three vehicles may vary slightly over the short term but over the medium and long term they will share a strong positive correlation.
The major selloff in global equity markets, which began on 19 February, reached its nadir on 23 March, at which point the MSCI World Index had declined by 35%. The rapid worldwide spread of the COVID-19 virus has brought many businesses to a halt, and confined employees across multiple ‘non-essential’ industries to their homes. Commentators have quickly moved on from debating if there will be a global recession, to how long and how deep it will be.
While all regional indices recorded declines in March, losses were least severe in Asia where there are tentative signs that countries including China and South Korea may have seen the worst of the pandemic. At a sector level the hardest hit were those most sensitive to the pending economic downturn including Industrials, Financials and Energy. The weaker Australian dollar in March reduced the losses for unhedged global portfolios such as the WCM Quality Global Growth strategy.
As with previous periods of heightened market volatility, the portfolio’s overweight exposure to quality and secular growth companies contributed significantly to relative outperformance in March. These included healthcare companies Illumina, West Pharmaceuticals and Thermo Fisher Scientific along with the communications infrastructure group, Crown Castle. The economically sensitive holdings in the portfolio and those most directly impacted by the COVID-19 shutdown fared worst. These included contract food service firm Compass Group and McDonalds.
Given WCM’s long-term approach (i.e. a minimum time horizon of 3–5 years) and the belief that the full ramifications of sudden macro-related event, such as the current COVID-19 pandemic, are unknowable, the team remains convinced that the most important investment objective is to own businesses that:
- have solid balance sheets in industries with long-term structural growth drivers;
- are improving their competitive position; and
- possess strong, healthy cultures.
Such firms are much more likely to navigate macro issues, including the current pandemic, better than their peers and win in the long run.
The positive aspect of market volatility is that it offers outstanding opportunities for bargains on high-quality companies that fit WCM’s investment criteria. Further, these volatile periods tend to refocus markets on structurally high-quality businesses (i.e. growing moats and strong, long-term tailwinds) rather than mediocre businesses benefitting from temporary/cyclical phenomena. That plays to WCM’s strengths. With valuations having been reset, the ultimate return to stability will be accompanied by ample opportunity for strong long-term returns.