We are pleased to provide you with a summary report on the performance of the WCM Quality Global Growth Equity Strategy Composite (the Strategy) in March 2021.
The Strategy1 delivered a return of 0.9% during the month, below the benchmark MSCI All Country World Index (ex-Australia) return of 4.4%. The Strategy has delivered returns in excess of the benchmark over the previous 12-month period, as well as over three, 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 Equity Strategy Composite 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 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 WCM Quality Global Growth Equity Strategy Composite to provide a better understanding of how the team has managed this strategy over a longer period. Performance is in AUD net of fees and includes the reinvestment of dividends and income. 2. Strategy 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 Strategy 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) (LIC).
- WCM Quality Global Growth (Quoted Managed Fund) (ASX:WCMQ) (ETMF).
- WCM Quality Global Growth (Managed Fund) (unlisted managed fund).
- WCM Quality Global Growth (Managed Fund) (hedged).
Investor optimism on the outlook for the global economy continued to push equity markets and bond yields higher in March. This optimism was driven by the ongoing successful COVID-19 vaccine rollouts in the US and the UK and the passage of the $1.9 trillion US stimulus bill. Consensus estimates of US economic growth in the current year have recently risen to 7%. While such strong economic growth comes with the risk of higher inflation, the US Federal Reserve has indicated it does not expect to increase interest rates before 2024.
Sector leadership during the month came from a mix of industrial stocks likely to benefit from the cyclical upswing and also more defensive sectors such as consumer staples and utilities. Information technology stocks were weaker, finishing the quarter as the second worst-performing sector. Emerging markets and smaller companies, two of the stronger performing parts of the market in recent months, gave up some of their relative gains in March. At a factor level, value continued to outperform growth. For the quarter, value posted a gain of close to 10% versus a flat return for growth. The Australian dollar was weaker in March, a positive for unhedged portfolios.
Consistent with the broader market weakness in higher multiple growth stocks, the portfolio’s e-commerce and technology-related names were the biggest drag on portfolio performance during March. Conversely, relative outperformance came from a number of the portfolio’s more economically sensitive (cyclical growth) industrial and consumer discretionary holdings. Canadian National Railway is an example of a cyclical growth holding in the portfolio. It is the most profitable and efficiently run North American railway and the near impossibility of a competitor starting a new network provides it with a strong and durable moat.
Rising bond yields were one of the dominant market features in the March quarter. The 10-year US Treasury yield reached 1.75%, up from 0.9% at the beginning of the year. Rising bond yields tend to have a positive correlation with the economically sensitive value sectors of the equity market, including financials and energy. The strong performance of energy and financials, two underweight sectors in the portfolio, provided a headwind to relative returns in the first quarter. However, while this may continue as a headwind in the short term, the WCM team will not be straying from their proven investment process. This process is based on finding high-quality (expanding economic moat) companies with corporate cultures aligned to this positive moat trajectory. It is difficult to find financial and energy companies which meet this criteria and as such the portfolio is likely to remain underweight these sectors.