Portfolio Manager comment Coeli Global Select January 2019

January was a good month for equity investors with rising stock markets around the globe. The risk appetite was back and the returns of most equities was comparable to a one-year return in the stock market. The performance of the fund during January was 6.70 percent in R EUR, which was 1.2 percent less than the benchmarking index. The best contribution to the return came from Mastercard, Wirecard and Chemours. The three stocks   in the fund performing weakest were HDFC Bank, RBL Bank and Beijer Ref.  The stocks that had the best return in January were the stocks associated with high cyclical exposure.

During December and January, we have focused our analysis on finding cheap stocks within the US building sector. The reason for this is that we think that the lower interest rates in the US will support the demand of the whole building sector.

Events and trends that are dominating the market development

The two main reasons behind the strong gain in the stock markets in January are that the long-term interest rates came down and that central banks (Federal Reserve and ECB) were communicating a slower phase of interest hikes the coming year. We also saw that the trade war between the US and China had hardly no effect on the stock markets. Here we can look forward to a release-rally once the trade conflicts settle between the US and China, and especially technology stocks will do well.

Portfolio changes

This month we added four new stocks, United Rentals, GMS Inc., Axos Financials and Vonovia. The two first ones are good examples of stocks that will benefit from an up-tick in the US housing market. Axos Financials is a fast-growing internet bank that has reached low valuation during the bear market in the fall. The fourth new company is Vonovia that was added back to the portfolio due to low valuations. During the month we sold Beacon Roofing Supply since this US housing company was replaced with United Rental and GMS from the same sector.

Global fund’s positioning

Since summer we have seen many profit warnings beating down share prices to very low levels and cyclicals stocks have now become very cheap. We noted in early January that there where almost no negative share price reactions on the new profit warnings. Our conclusion was that all negative information has now been discounted in the share prices. We have seized this opportunity and added new cyclical-stocks that has become really cheap. Our assumption is that these stocks will rebound when interest get lower and the risk appetite return to the markets. We also assume that there will be broad returns in the stock markets where cyclical stocks will outperform defensive stock.