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Price volatility was on the rise during the summer months with global equity markets trading up and down largely in response to developments in America’s ongoing trade wars and hopes for a constructive resolution. Meanwhile, the U.S. Federal Reserve maintained this year’s more dovish tone by cutting interest rates 0.25% in both July and August. Also, on the positive side Q2 corporate earnings generally surprised to the upside.
As we have seen throughout 2019, risk markets have been taking their cue from government policy statements and rhetoric around the trade war and interest rate policies. The on again, off again U.S.- China negotiations have clearly been a significant catalyst for market action this year. In recent months, the growing uncertainty for a clear path forward has been negatively impacting trade and global manufacturing. Economists are undecided if America’s relatively resilient consumer can continue to offset the weakness in its industrial sector.
While the Fund modestly lagged the MSCI World Stock Index over the quarter, it remains ahead of benchmark on a year-to-date basis. Moreover, we believe our portfolio remains favorably positioned in front of positive market trends. While politically driven macroeconomic headwinds remain and may even be escalating, we continue to emphasize innovative companies possessing wide economic moats and strong balance sheets. Although the fund’s net total return of -0.94% for the third quarter lagged the index return by about 81 basis points, it remains ahead of benchmark by 43 basis point year-to- date net of fees.
During the third quarter, the best performing sectors were Consumer Staples, Information Technology and Electric Utilities while the Energy, Healthcare and Materials sectors underperformed. The Fund had effective stock selection in the Consumer Discretionary sector and its relatively strong positions in Communication Services helped the portfolio’s total return. The largest detractor from relative performance was from the Healthcare sector as it has been for most of this year. However, we continue to believe this sector offers even more compelling long-term value for our investors at currently depressed prices.
We continue to remain opportunistic in our security selection. With the U.S. in the late to mid part of it economic cycle, the quantitative backbone underlying our process has been tilted to higher quality. Therefore, recent purchases have been focused on companies exhibiting wider moats, stable cash flows and better credit metrics. Although we are a long way from the last official recession, we expect the current political regime will do everything in its power to avoid a recession going into an election year when America’s incumbent president is running for a second term in office. Also, we believe the Fed will remain accommodative and look to head off a slumping economy on any significant signs of deteriorating growth. Nevertheless, the global growth is likely to continue its slump into year-end and we therefore believe a certain amount of defensiveness will be advantageous.
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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.
