1 May 2020

Global share markets have provided investors with something of a rollercoaster ride over the past two months. In March, US markets experienced the fastest 20% fall in history, to be followed, not long after, by the largest one-day gain in history. In April, markets have continued to shrug off some of the pessimism with a continued climb out of the depths.

The world is far from out of the woods yet, and companies are having to re-write their expectations of the future on an almost daily basis. The Milford global equities team is hard at work assessing the emerging threats and opportunities around the world.

The global equities team is focused on finding and holding best-in-class companies in favourable sectors. We believe that wealth is built over time by compounding returns with promising enterprises. Crises offer an opportunity to upgrade our portfolio and own more of the companies we like. Also, we are innately aware that an allocation to global shares, in the scheme of the overall client portfolio, is one clearly marked as high risk and, hopefully, high returns.

Consistent with this, the Milford Global Equities Fund maintained its investment level during this period of volatility. That said, it has been far from a static portfolio.

In February, when it was increasingly clear that the virus was spreading beyond China, the Fund reduced travel and tourism related exposures, such as:

• Flight simulator maker CAE and aircraft parts maker Transdigm;
• payment companies Visa, Mastercard, WEX and Nexi;
• and luxury conglomerate Louis Vuitton (LVMH).

Then, when it became apparent that Europe and US were slow in their response to the threat, we reduced large-ticket consumer exposures in developed countries, such as:

• US homebuilders DR Horton and NVR, and US property website Zillow;
• and teeth straightener Align.

the proceeds from the sales were reallocated to stay-at-home beneficiaries, such as:

• US hypermarket chain Costco;
• online shopping-focused payment company PayPal (this contrasts with trims in Visa and Mastercard which are more exposed to travel and offline commerce) and Chinese online shopping giant Alibaba;
• video game makers Activision, Electronic Arts, NCSoft, and NetEase;
• and the US large cap technology leaders Microsoft, Amazon.com, Apple, and Alphabet (Google).

However, by mid-March central banks and governments around the world were embarking on unprecedented measures to support the bond market, resuscitate failing economies and save jobs. Importantly, share prices of the most affected companies were already down 40-60% from their peaks. The Fund started to gradually increase exposure to cyclically sensitive quality companies, such as:

• top 3 global consumer credit ratings company TransUnion;
• electronics specialist Amphenol;
• industrial simulation software company Ansys;
• aircraft engine maker Safran;
• cleaning and sanitation products company Ecolab (the shares had fallen on exposure to hotels and restaurants).

The Fund has outperformed on the way down from owning quality, defensive companies. The task ahead will be to keep pace on market rebounds with an eye to ongoing volatility risks. The Fund will be actively managed based on our assessment of incoming information whilst the team constantly looks for upgrades in line with best-in-class companies in favourable sectors.

Whether you hold the Global Equity Fund directly, or indirectly as one of the key holdings in the Milford Balanced and Active Growth Funds, we hope you find this of interest.

Stay safe and well.

The Team at Milford