We are pleased to provide you with a summary report on the performance of the WCM Quality Global Growth Equity Strategy (the Strategy) in May 2022.
The Strategy1 delivered a return of -3.26% during the month. The Strategy has delivered returns in excess of the benchmark MSCI All Country World Index over five and 10 years, and since inception.
Notes: 1. WQG, WCMQ and WCM Quality Global Growth Fund (Managed Fund) have the same Portfolio Managers and investment team, the same investment principles, philosophy, strategy and execution of approach as those used for the WCM Quality Global Growth Strategy however, it should be noted that due to certain factors including, but not limited to, differences in cash flows, management and performance fees, expenses, performance calculation methods, and portfolio sizes and composition, there may be variances between the investment returns demonstrated by each of these portfolios and the WCM Quality Global Growth Strategy Composite (the Composite) in the future. 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 Composite to provide a better understanding of how the team has managed this strategy over a longer period. Performance is net of fees and includes the reinvestment of dividends and income. 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.
The Strategy is conveniently available via 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:
- WCM Global Growth Limited (ASX:WQG)
- WCM Quality Global Growth Fund (Quoted Managed Fund) (ASX:WCMQ)
- WCM Quality Global Growth Fund (Managed Fund) (Unhedged)
- WCM Quality Global Growth Fund (Managed Fund) (Hedged)
Strategy Update
A powerful rally at the end of May offset some steep losses early in the month, leaving global equity markets relatively unchanged in local currency terms. The market weakness in the early part of the month was driven by continued concerns over rising interest rates, the war in Ukraine, lockdowns in China, and some high-profile earnings disappointments in the Technology and Retail sectors. This left many equity market indices flirting with bear market status (i.e., a decline of more than 20% from the previous peak) by mid-month. The subsequent rebound in markets followed the release of US consumer price inflation data which, while still close to 40-year highs, was lower than the previous month. The release of the minutes of the most recent Federal Open Market Committee meeting also helped, as they gave reason for optimism that the Federal Reserve is unlikely to adopt an even more aggressive monetary tightening program.
At a regional level, emerging markets marginally outperformed developed markets; the former boosted by a rebound in Chinese equities on signs that COVID-19 lockdowns were nearing an end. The Consumer sector struggled following the aforementioned disappointing earnings announcements. From a style perspective, it was another month in which value outperformed growth. The Australian dollar was firmer over the course of the month, dampening returns for unhedged portfolios.
Portfolio performance attribution for the month showed the largest positive contributors, from a sector allocation perspective, came from the zero weighting in Real Estate, followed by the overweighting to Health Care. In contrast, the absence of any exposure to Energy and Utilities detracted from relative performance, as did the underweight position in Financials. In terms of stock selection, the biggest drag on performance came from the Information Technology, Industrials and Consumer Staples parts of the portfolio. The portfolio’s Financial sector exposure delivered the strongest performance from a stock selection perspective.
No exposure to the Energy sector in the portfolio has been a material headwind to relative performance throughout the year to date. It is fair therefore to ask 1) why is there no exposure? and 2) is this likely to change? The WCM investment team does not lay claim to having any competitive advantage in forecasting the spot price of oil, and as such does not see the Energy sector as a source of consistent long-term outperformance. WCM’s circle of competence is in identifying changes in competitive advantages (moat trajectory), culture and other qualitative factors. So, while the Quality Global Growth Strategy has previously had exposure to some of the ‘pick and shovel’ plays in the Energy sector, it is unlikely to have any material exposure to the more traditional Energy stocks in the near future.
Recent portfolio performance relative to the market has been disappointing, with 1- and 3-year performance numbers falling below benchmark. This is not unexpected given the style rotation towards more value-oriented sectors. Generally, value stocks tend to perform better in an environment of rising interest rates and higher inflation. However, in previous periods of underperformance and recovery, WCM’s playbook was the same as it is today, i.e., remaining disciplined and choosing only the highest-quality companies that have expanding competitive advantages supported by well-aligned cultures. This disciplined approach to not only stock selection, but also portfolio construction, helps to achieve a good risk-reward balance which ultimately delivers the best long-term returns for investors.
DISCLAIMER: AGP Investment Management Limited (AGP IM) (ABN 26 123 611 978, AFSL 312247) is a wholly owned subsidiary of Associate Global Partners Limited (AGP) (ABN 56 080 277 998), a financial institution listed on the ASX (APL). AGP IM has prepared this material for general information purposes only for WCM Global Growth Limited, a listed investment company (ASX: WQG).
AGP IM is the responsible entity for WCM Quality Global Growth Fund (Quoted Managed Fund) (ARSN 625 955 240) (ASX: WCMQ) and WCM Quality Global Growth Fund (Managed Fund) (ARSN 630 062 047).
AGP International Management Pty Ltd (AIML) (ABN 33 617 319 123) is the investment manager for WQG and is an authorised representative of AGP IM. WCM Investment Management, LLC (WCM) is the underlying manager and applies its WCM Quality Global Growth Equity Strategy (the Strategy), excluding Australia, in managing each of WQG, WCMQ and WCM Quality Global Growth Fund (Managed Fund)(the Funds). WCM does not hold an AFSL. WQG and CIML are part of the AGP Group.
Any references to ‘We’, ‘Our’, ‘Us’, or the ‘Team’ used in the context of the portfolio commentary, is in reference to WCM Investment Management, as investment manager for the Strategy or CIML as investment manager for WQG.
Even though the Strategy, excluding Australia, is applied to each of WQG, WCMQ and WCM Quality Global Growth Fund (Managed Fund) certain factors including, but not limited to, differences in cash flows, fees, expenses, performance calculation methods, portfolio sizes and composition may result in variances between the investment returns for each portfolio. The performance of the Strategy is not the performance of the portfolios and is not an indication of how WQG, WCMQ and WCM Quality Global Growth Fund (Managed Fund) would have performed in the past or will perform in the future.
The material should not be viewed as a solicitation or offer of advice or services by WCM, AGP or AGP IM. It does not contain investment recommendations nor provide investment advice. It does not take into account the objectives, financial situation or needs of any particular individual. Investors should, before acting on this material, consider the appropriateness of the material.
Neither AGP IM, AGP, their related bodies corporate, entities, directors or officers guarantees the performance of, or the timing or amount of repayment of capital or income invested in the Funds or that the Funds will achieve its investment objectives. Past performance is not indicative of future performance.
Any economic or market forecasts are not guaranteed. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided that the positions will remain within the portfolio of the funds. Any securities identified and described are for illustrative purposes only and do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable.
Investors should seek professional investment, financial or other advice to assist the investor determine the individual tolerance to risk and needs to attain a particular return on investment. In no way should the investor rely on information contained in this material.
Investors should read the Product Disclosure Statements (PDS) of the Funds or any relevant offer document in full before making a decision to invest in these products.