During July the fund lagged the MSCI Emerging Markets index by 1.5%.
The largest drag on the fund was a sell-off in Taiwanese technology shares sparked by a mix of US investor rotation out of AI themes and renewed geopolitical concerns on the stance of a potential second Trump administration. This also impacted the Korean market while India where we have little exposure continued to rally. Relative positives for the portfolio were stock selection in China and our overweight positions in smaller markets like the UAE and Greece.
Over the past weeks we have seen significant volatility in markets which has felt like a healthy unwind of some extreme positions – the implosion of the Yen carry trade being the most visible. While there are many possible narratives to explain the market’s moves, we feel the most plausible cause has been thin liquidity and de-risking while investors are trying to have a quiet holiday. These type of events aren’t necessarily pleasant for investors but they serve as a healthy reminder that markets involve risk. They also present opportunities by creating periods when equity markets aren’t necessarily focused on fundamentals.
We have been active in reshuffling a portion of our portfolio amidst the volatility. In particular we have exited three consumer stocks where our thesis of pricing power thanks to significant market share was not holding up in the current disinflationary environment – this has been particularly evident in China. We have been able to add new positions in global industrial sectors among others, where we are confident that market leaders enjoy a healthier dynamic.
Going into the final months of the year we will continue to face uncertainty in US politics and headwinds from a Chinese economy trying to regain traction. Despite this or perhaps because of it, we continue to find many stocks whose profitability and cash generation is being overlooked. The prospective dividend yield on our portfolio is approaching 5% even as US 10 year bond yields have dropped below 4% and the headwind of a strengthening dollar seems to be easing.
