Performance Review

After a difficult end to 2018, international equity markets reversed in January, resulting in the market being up 7.56%, as represented by the MSCI ACWI ex USA Index. Investors moved back into areas of the market that had lagged during the sell-off at the end of the year. This reversal saw more defensive areas of the market lagging while more traditional cyclicals showing relative outperformance.

Against this backdrop, the Fund (Class I Shares) returned 8.89%, outperforming its benchmark, the MSCI ACWI ex USA Index.

The main contributors come from a wide variety of holdings from more cyclical and deeper value areas to cheap and higher quality defensive yielders. Within materials, our positioning within mining was a positive contributor over the month as many of our holdings performed strongly. Our overweight positions within United Kingdom (UK) financial names performed strongly as fears of a no-deal Brexit receded, benefiting many of our holdings.

Within more defensive areas of the market, our focuses on valuations first and then understanding the quality was rewarded. This was seen in larger-cap, more expensive names in Europe, many of which we are underweight. These stocks had been rewarded in 2018, which led us to reduce our exposure. In the January rebound, they saw relative underperformance. In addition, our preference for cheaper names in Japan and mid-caps in Europe, in both consumer staples and healthcare, benefited the Fund.    

Portfolio Positioning

Our process focuses on finding stocks that offer the right combination of affordability and business health (as we’ve mentioned before, value doesn’t need to simply be high risk) and we continue to see many areas of the international markets being overlooked. This means we are seeing opportunities across the full spectrum of value, from deep value in resources and Japan, to high quality yield in consumer staples and healthcare companies.

The most significant exposure remains financials. We continue to be focused on attractively-valued stocks while also being conscious of the company’s quality to assess its risk. We took profits and reduced our exposures on a few of our favored positions in Europe that performed strongly over the month.

With the strong performance of more defensive areas of the market in December, we continued to take profits at the start of the month from a number of our positions in healthcare and staples, primarily among European companies.

Resources continue to be a significant holding in our portfolios. Our preferred holdings have been focused on chemicals, mining, and integrated oil & gas, which offer an attractive valuation given their quality attributes. We added to several of our preferred Asian positions.

In more cyclical areas we continue to find opportunities across a number of areas. We believe, going forward, there continue to be opportunities within these names given that they are cheap, high quality, unleveraged companies.