LOM Equity Growth Fund Manager’s Report Q1 2017
By Bryan Dooley | April 10, 2017
Over the first quarter of 2017, the LOM Equity Growth Fund delivered a net total return of 6.35% compared to the MSCI World Stock Index which increased by 5.27% on a fee-adjusted basis, representing outperformance of 1.08%. The Fund benefited from advantageous sector weightings combined with strong security selection which collectively contributed 165 basis point of positive relative attribution against the global benchmark. Currency exposure (being overweight the U.S. dollar) detracted 41 basis points of relative performance, although we are still a believer in the intermediate to longer term prospects of the greenback as the Fed looks to stay on its path of gradually raising interest rates while central banks in both Europe and Japan maintain their “near zero” interest rate monetary policies.
On a sector basis, the Fund was overweight the three best performing market sectors: Consumer Discretionary, Health Care, and Information Technology. Together, these three sector weightings added 93 basis points of positive relative attribution. Consumer Discretionary, our largest overweight at 21.3% versus 12.3% within the MSCI World Stock Index, altogether provided a total return of almost nine percent for the quarter, while our Information Technology positions advanced by 11.1%. Healthcare was also a standout, with our holdings in Cerner Corp (+24.2%), Allergan PLC (+14.1%), and Becton Dickinson (+11.2%) contributing positively to both absolute and relative returns.
During the quarter, we added to some of our individual stock positions including Monsanto Company, Hanesbrands Inc., and Express Scripts Holdings Co. when they began to show high marks on our quantitative scoring system, indicating positive relative value metrics. On a sector and regional basis, we also increased our exposure to Emerging Markets and biotechnology. The biotech sector saw a sharp decline during one of President Trump’s healthcare pricing rants. We used the January sell off as an opportunity to add to our biotechnology ETF, IBB while simultaneously selling puts on the same issue. Adding to the position was for our long term growth objective but we were quickly rewarded with strong gains prior to quarter-end as the biotech sector rallied back sharply.
Looking ahead, we still see potential for further equity market progress as the global reflation scenario remains intact – but emphasize the importance of being selective. The recent sell off in financial and energy stocks looks particularly enticing as does the relative undervaluation of many European equity markets which have been held back by concerns over local political and economic policies. Three of our positions, NXPI Semiconductor, Monsanto Company and Time Warner are in the process of being bought out by other companies at substantial premiums above their current prices. We are highly confident that all will go through as advertised, but more importantly, they each represent attractive situations on a stand-alone basis.