Performance Review 2006
James Smith: "World equity markets were strong during October and markets climbed despite pessimism regarding corporate profit trends (Q3 profits achieved expectations). However, the US Fed advised that investors shouldn’t anticipate a rate cut quite yet. Good contributions came from almost all of our holdings, but of particular note were telecoms including Vodafone and Telestra, and airlines boosted by falling energy prices."
Performance Review 2007
James Smith: "The market ended October strongly encouraged by a US Federal Reserve rate cut and the belief that the US sub-prime problems would be successfully overcome. This monetary easing fuelled a rise in risk appetite as investors chased returns. The fund fell behind mainly due to our cautious positioning in cash and a value bias which has lagged growth and momentum in stocks during the second half of the year."
Performance Review 2008
James Smith: "Global equities were weak during June as fears of rising inflation added to earlier concerns of a global economic slowdown. This trend seemed likely to continue while energy prices broke new highs. The fund was hit by continued weakness in financial and cyclical stocks. In particular, UK homebuilders suffered a collapse in share prices as rumours spread of possible insolvencies.
We retained our strategy of buying sectors showing the best relative value and therefore the best prospects for outperformance over the long term."
Performance Review 2009
James Smith: "This performance was largely due to confidence that markets were oversold previously and that some improvement in the economic outlook is likely. Accordingly, the fund was overweight financials including ING and Citigroup, and cyclical stocks such as Logica and Daily Mail which all performed particularly well as some risk appetite returned. Some of the fund’s more defensive sectors lagged the broad index with energy and pharmaceutical stocks including Chevron and AstraZeneca underperforming.
While the market was expected to move higher, the fund trimmed some of its bigger positions to reinvest in new ideas. New holdings included Nintendo and Enel, both of which looked significantly undervalued. Positions in ICAP, Home Retail and Premier Farnell were sold to lock in performance."
Performance Review 2010
James Smith: "Equity markets ended January in a nervous state compounded by Chinese tightening and Obama’s US bank reforms. Strong stock performance came from cyclical sectors (Nintendo and Nokia).
The Global equity rally continued through March. UK and US banks performed well, with Lloyds and Citigroup up 20%. Cyclicals outperformed again.
The fund experienced negative returns either side of a strong July, whilst in the second half, November was the most harmful in terms of Fund performance. On a more positive note, the Fund recovered well in December. Holding an over-weight in UK and Europe helped as did being overweight cyclicals. Bank of America and Santander performed strongly.
The Fund continued to favour Europe and UK at the expense of North America and the Far East. In Japan we remained neutral and although the market was looking increasingly cheap, we held back from moving aggressively into the market, choosing instead to wait for fuller confirmation of a recovery."
Performance since 2006
Please refer above for commentary covering the period 2006-2010.
Investment Process and Strategy – How does the Fund Manager Invest?
James Smith: "Ignis global equity strategy takes a top-down, value driven approach to global equity investing.
The core concept behind the global equity investment process is relative value and mean reversion, applied to both top-down sector selection and bottom-up stock selection.
The Ignis global equity team believes that a “value” style of investing, focusing on relative value opportunities and the mean reversion principle, applied in a disciplined and consistent manner, will outperform and deliver significant alpha in the long term.
The quantitative screening provided by MASAM provides an objective framework for making investment decisions. This reduces the chance that decisions will suffer the emotional and psychological biases (such as anchoring, herding and loss aversion) that can affect fund managers. The process also recognises the weakness of a purely quantitative “black box” approach, and so the objective quantitative screen is blended with the subjective judgements that reflect the manager’s long investment experience.
We believe that in the long-run the majority of the variance in stock prices can be attributed to overall market conditions, and in particular how the market perceives the region and/or sector in which a stock is domiciled. Our belief is that over time a smaller part of the variance is explained by stock specific factors. Given this view, we first select the most attractive regional sectors - those exhibiting characteristics expected to lead to outperformance – before turning our attention to the stocks that best exhibit those characteristics within a sector. This results in a relatively concentrated portfolio of the “best of the best” stocks."
Investment Outlook
James Smith: "There are risks in the Eurozone where the perception is that a lot of bad news has already been factored into prices. It is always difficult to forecast the short term unpredictability of market sentiment but we believe that sticking to the fund’s policy of holding significantly undervalued assets relative to growth prospects will pay off. The global economic recovery is expected to grind forward in 2011 and equities should produce positive returns."
