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For the second quarter of 2017, the LOM Equity Growth Fund delivered a net total return of 4.16% compared to the MSCI World Stock Index which advanced by 3.38%, representing outperformance of 0.77%. The S&P 500 stock index gained 3.09% for the period.
The Fund benefitted from well positioned sector weightings and strong security selection, but was held back modestly by currency headwinds as the greenback softened and we remain overweight U.S. dollar exposure. Breaking it down, security selection added approximately 94 basis points to relative total return while sector allocation added another 35 basis points.
Performance between sectors was quite varied during the quarter, making top-down strategy the key to navigating markets. Healthcare was up 7.09% while Energy was down 4.78%. Our sector bets paid off, however, as for example our seven percent overweight to healthcare achieved a total return of +7.7%, adding 42 basis points to the portfolio’s total return. Security selection played a role, too. Although Information Technology was an average relative performer in Q2, our positions collectively returned +8.23%, more than double the index return.
In terms of individual positions, our best performers were spread across multiple industries. In technology, Oracle Corp (+12.9%) and Paypal Holdings, Inc. (+24.8%) were notable leaders after both companies reported excellent results. Paypal has benefitted from important trends in e-commerce while Oracle has been more of a turnaround story which has finally begun to pay off.
In the Industrials space, United Technologies (+9.42%) and Honeywell International (+7.2%) performed admirably while Unilever (+10.4%) did well in Consumer Staples. Meanwhile, Carnival Corp (+12.0%) and Hanesbrands (+12.3%) were standouts in Consumer Discretionary.
We stated in our last manager report that we see potential for further equity market progress as long as the global reflation scenario remains intact and central banks do not act too rashly in reducing monetary stimulus. So far, our base case appears to be unfolding. In this environment, we are paying strict attention to valuations on both the buy and sell side.
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The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.
