On 11 January 2019, Montgomery Global Equities Fund (ASX: MOGL) published its December update for monthly investment report. As per the release, the company has generated positive returns of 4.70% in income since its inception. It has generated an income of 1.96%, 1.98% and 2.14% over the period of last six months, three months and one month, respectively; however, the capital growth was negative over the same periods with the fund yielding a total negative return of 9.37%, 10.93%, and 3.48%, respectively. However, it has outperformed the MSCI world net total index return marginally over the last three months. Since July 2015, the Montgomery Global Fund (MGF) generated 32.27% returns against the Index returns of 25.51%, signifying solid return over the same period.
As at 31 December 2018, the company has 89.8% weighting in equity and rest in cash, of which the top three holdings in terms of weighting in the equity portfolio includes Vivendi, Insperity, Facebook with 7.0%, 6.7%, and 6.1%, respectively. During the year, the company witnessed volatility in the market because of macro-economic factors across the world.
In July 2018, there was a significant geographic rotation started to emerge. Equities in Asia and Europe started to materially underperform, while US equities started to outperform. Furthermore, within US equities, it has been observed that defensive sector stocks performed particularly well, such as Utilities.
Over the recent week, the company found the most compelling factors which could impact the overall market in the upcoming period. These factors are “The Fed blinks”, “Oil plummets”, and “trade war between the US and China”.
Furthermore, a reduction in the Fed’s expectations for future monetary policy, which was subsequently confirmed two weeks later when they published their downgraded forward guidance. This was evident from the change in the outlook of the Fed Chairman, Jerome Powell within two months. Additionally, in December quarter, the price of crude oil declined by more than 40 percent. This represents a source of deflation for the global economy and further reduces the need for aggressive monetary tightening over the short term, coupled with Trump and Xi peace outlook although without any concrete agreement.
As per the outlook of the MGIM, the median return outcome has likely increased (shifted to the right as per the probability distribution curve), with the probability of negative returns decreasing and the probability of higher returns increasing. On this basis, MGIM has deployed a significant portion of the Fund's cash into the existing high-conviction long portfolio of high-quality global businesses that the fund believes to remain undervalued.
To conclude, the fund employs a strategy that aims to own a relatively small number of high-quality global businesses when they are materially undervalued, and a limited amount of cash to help preserve capital when prices fall and enable the rapid deployment of the cash when there is an opportunity. The fund employs this strategy in a measured and systematic manner with appropriate risk limits, constraining the maximum size of any position and the maximum exposure to any one particular sector and hence the resulting net exposure the portfolio has to the overall equity market.
During the last one month, the stock has generated a negative yield of 1.55%. Today, there was a marginal upside movement of 0.946% in the stock’s price and is currently trading at the price of level $3.20.