Portfolio Manager comment Coeli Global Select August 2019

August was a month of contrasts during which we held shares that rose sharply, such as US construction company GMS (our holding is up in value by more than 60 percent in six months) but also stocks that saw a relatively worse performance; for example, India’s Yes Bank and chemicals distributor IMCD. Overall, our fund was down around 2,5 percent, which was 1.35 percentage points worse than our benchmark index.

The end of the month brought the positive news that the ruling party in Berlin is starting to change its rhetoric and attitude towards a freezing of market rents, a proposal that had cast a pall over our German real estate shares. As you know, we have a reasonable exposure to that segment. Things are now moving in our favour in Germany and so we expect a better development from our real estate stocks from this point on.

Key market events and trends affecting performance

A little better day by day. During the first half-year the global manufacturing sector has progressed slowly, with the car industry a particular drag. Many factors are at play: for example, the technology shift is hiking costs and elevating car sales prices to levels consumers are not willing to pay. Moreover, China has produced too many cars for a number of years and the market is now seeking equilibrium. However, we see the US car industry starting to pick up (cross our fingers) and in Europe it seems to be stabilising. We see similar signs from other parts of the manufacturing sector, such as the semiconductor industry, and overall we believe the second half of the year will show improvements for many cyclical stocks. Other sectors, such as European banking, will presumably have many years (or even a decade?) of weak profits as their business models struggle with a negative interest rate environment in which they are likely stuck for a considerable time. Note: we don’t hold any European bank shares.

Portfolio changes

During August, we have sold the remainder of our holding in 3M, a share we have held for almost five years. 3M is still a fantastic company but we need more rapid profit growth in our holdings than it could give us.

The fund’s positioning

Again, the positioning of our fund is unchanged in principle from the previous month. We have taken a little more cyclical risk on the margin than before and prepare ourselves for a great autumn on the stock markets.