We are pleased to provide you with a summary report on the performance of the WCM Quality Global Growth Equity Strategy (the Strategy) in September 2021.
The Strategy1 delivered a return of -3.58% during the month. The Strategy has delivered returns in excess of the benchmark MSCI All Country World Index over six months, three years, five years, ten 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)
The September decline in global equity markets largely erased the gains achieved in the preceding two months of the quarter. Global equities, however, remain firmly in positive territory year to date. While a market pause was inevitable at some stage post the strong rally from the lows of March 2020, there was no shortage of negative news for those investors seeking reasons to lock in part of their recent gains. These negative news stories included the US Federal Reserve flagging the potential for an earlier than expected tapering in bond purchases and an increase in interest rates in late 2022. Fears of a possible debt default by Chinese property developer Evergrande Group, ongoing concerns of the effect of supply chain disruptions on inflation and fears of a US government shutdown added to the overall negative market sentiment.
At a regional level, emerging markets outperformed developed. Energy, the only sector posting a positive return, and Financials were among the top-performing sectors. These two sectors contributed to the outperformance of value factors relative to growth and quality.
The portfolio’s underweight exposure to energy and interest rate-sensitive financial stocks and the overweight position to the two worst performing sectors, Technology and Healthcare, contributed to the underperformance in September. Stock selection during the month was a marginal drag on performance too.
September brought renewed focus on the question of whether the recent increase in inflation will turn out to be more permanent than transitory. The significance of this question for growth-style investors is that higher inflation typically leads to higher interest rates. As growth stocks are considered long-duration assets (i.e. their cash flows are expected in the more distant future), their valuation is more sensitive to long-term interest rates. The theory goes that when interest rates are rising, the valuation multiple of growth stocks comes down.
So, should investors in the WCM Quality Global Growth strategy be concerned about the potential impact of rising inflation and interest rates? As ‘bottom-up’ investors, the team at WCM does not get involved in economic forecasting. However, the investment team is always aware of the factor biases in the portfolio, including its sensitivity to rising interest rates. The portfolio construction process ensures that the strategy is at all times diversified across defensive growth, cyclical growth, and secular growth companies. While the secular growth ‘bucket’ is sensitive to the negative impact of rising interest rates, the impact on the other two is more limited. In fact, cyclical growth companies can be positively correlated with rising rates if accompanied by stronger economic growth and increased pricing power. This diversification, plus the continued focus on companies with expanding economic moats and corporate cultures aligned to their moat trajectory, helps to protect the portfolio during times of economic and market volatility.
Copyright © 2021 Contango Asset Management Limited (ABN 56 080 277 998)
DISCLAIMER: Switzer Asset Management Limited (SAML) (ABN 26 123 611 978, AFSL 312247) is a wholly owned subsidiary of Contango Asset Management Limited, a financial services business listed on the ASX (CGA). CGA has prepared this material for general information purposes only for WCM Global Growth Limited, a listed investment company (ASX:WQG).
SAML 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). SAML and CGA are authorised representatives of ST Funds Management Limited (AFSL 416778) to provide general advice.
Contango International Management Pty Limited (CIML) (ABN 33 617 319 123) is the investment manager for WQG and is an authorised representative of SAML. 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 Contango Group.
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, CGA or SAML. 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 SAML, CGA, 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.