12/3/2020 11:00:00 PM

Fund Reviews: Global Growth


Read the latest on our Global Growth funds: Global Growth, Growth UK & Europe, and Global Growth 2.

Written by Toby Woods, Senior Investment Analyst

Global Growth Fund  (Previously Global Small Companies) 

The Global Growth Fund was up 4.7% in November, leaving it up 24.5% for the 12 months to date. The cash level on 30 November was 20%, down from 24% in October.

November has been a fascinating month for equities. At the start of the month we were contending with high volatility as the US election result was mired in controversy. Yet before we had time to digest the extraordinary events in Washington, Pfizer announced a successful Covid vaccine which, excuse the pun, was a shot in the arm for stock markets. The subsequent sector rotation across all geographies was one of the most aggressive on record, and which was relatively damaging for the portfolio. We saw a rapid sell off in some of our ‘Covid winners’ such as BHG Group, Nexus and Swedencare, and a surge from ‘recovery plays’ such as Norma, OMA and Wilcon Depot.

Before the vaccine was announced we had been slowly reallocating some of our investments into recovery stocks in anticipation of the news, but we had misjudged the speed with which the market would move on Pfizer’s publication (driven by the high efficacy rate that was not expected with the first announcement). We resisted the temptation to buy low-quality stocks that were rapidly repricing upwards, as we maintain our disciplined approach to investing into good companies we are happy to own for years, not weeks or months. Therefore, we were selective in buying some recovery stocks which are quality businesses too. One example is Sixt, the German car rental business, which has the strongest balance sheet within its sector and has used its financial strength to increase its presence in core locations. This will result in large market share gains when conditions normalise. We also bought ATS Automation, a Canadian tooling company that has a good balance between industrial/cyclical end markets and more resilient ones such as Life Science.

In other activity, we rebalanced the portfolio by taking some profits in Norma, BHG Group and OMA, while adding to our positions in Bakkafrost and DiscoverIE, both of which will be beneficiaries from the vaccine rebound. We sold our position in S&T, a German automation company which had bounced from the recent lows following a negative broker report. Finally, we initiated a position in Avon Rubber, taking advantage of the uncharacteristic share price weakness in this high quality supplier of protection equipment to military and law enforcement agencies.

Written by Toby Woods, Senior Investment Analyst

Growth UK & Europe Fund

The Growth UK & Europe Fund was up 6.9% in November, leaving it up 21.9% for the 12 months to date. The cash level on 30 November was 24%, down from 28% at the end of October.

Like the rest of the world, European markets have been through a roller-coaster month with the US election controversy depressing markets initially, followed by a surge upwards after the vaccine news. In fact, some European indices have seen the best month on record. We have lagged the market development this month as we are more geared towards growth companies than cyclical ones. However, notable positive moves within the fund are not just from Covid recovery plays, like Norma and Pebble, but also growth companies that have shown resilience despite the rotation, such as Fonix and Talenom.

After the vaccine news arrived, we used some of the cash available to deploy into more recovery winners. However, we maintained our discipline to buy high-quality businesses that we are happy to own in normal times. The result was that we bought three new positions. Fuller, Smith & Turner is a UK pub company with locations predominantly based within affluent areas of London and the South East of the UK, whose assets are high quality and unique. Kinepolis is a Belgium cinema operator with venues across Europe and North America that will survive the crisis without the need for additional funding, which sets it apart from its heavily indebted peers. Finally, Do&Co is an Austrian supplier of airline food and event catering. We owned Do&Co as we entered the crisis back in February, sold it quickly as events unfolded and have now bought it back more than 40% lower. Do&Co was taking significant market share before the pandemic, and will emerge even stronger.

To make room for the new positions, we exited positions in Tracsis and S&T. Tracsis has been a long-term holding in the fund, and although its future brightened with the vaccine news, we are wary of the exposure to UK rail which may take a long time to recover to prior levels. S&T has been a poor performer and we took advantage of a small rise in the share price to sell our remaining holding. We rebalanced some of the portfolio weightings by reducing exposure to Norma, Swedencare, Shop Apotheke and Talenom while adding to BioGaia and SES imagotag. Finally, before the market rotation, we had initiated a position in Sdiptech, a Swedish provider of niche products and services to municipal infrastructure projects.  

Written by Guy Thornewill, Head of Research UK & Europe and Senior Investment Analyst

Global Growth 2 Fund (formerly Climate Friendly)

The Global Growth 2 Fund was up 4.9% in November, leaving it up 13.6% for the 12 months to date. The cash level on 30 November was 10%, down from 15% at the end of October.

One of the most volatile months for stock markets in recent history ended with good gains for equity investors, as US election uncertainty was finally removed and the world welcomed some good news on Covid vaccines. The positive returns masked a savage rotation out of high quality growth stocks and into what had been the worst performing sectors since the pandemic started – travel and leisure. While we are pleased with the returns we generated for the month, the fund did lag the major indices as we had largely avoided the sectors hit hardest by the pandemic.

We had been starting to move into some companies in the travel and leisure sector ahead of this news, such as Mexican airport operator OMA, and we accelerated this during the month. New positions established included UK hotel operator Whitbread, German car rental company Sixt, and Faroese salmon farmer Bakkafrost. All three companies will be beneficiaries of a return to travel and dining out within a few months, but they are also historically successful companies.

Our strategy has been to buy good quality companies whose share prices have been unduly punished by the Covid restrictions, and not to stray into lower quality stocks for a short-term trade. We believe this will deliver better outcomes for clients over the medium and long-term. One example is Sixt, which has the strongest balance sheet within its sector and has used its financial strength to increase its presence in core locations. This should result in healthy market share gains when conditions normalise.

We funded these investments via some profit taking in some of our previous Covid winners, and even exited some holdings where we felt valuations had run too far.These included online pharmacy Shop Apotheke and online education provider Chegg. Both positions made substantial gains during 2020.

We also continued to focus on global leaders. We initiated positions in Disney and Keyence during the month. Disney is seeing great success with its new streaming service and will also benefit as its parks begin to re-open. Keyence is a global leader in industrial automation with its sensor products and has operating margins above 50%. We believe capex spending by large corporates will re-accelerate as the pandemic eases, and the trend towards automation will only intensify.

Past performance is not an indicator for future performance. This is not intended to be financial advice and does not take into account any particular person’s circumstances. Before relying on this information, please speak to an independent financial adviser. Pie Funds is the issuer of the Pie Funds Management Scheme. For access to the PDSs, please click here.