CC Marsico Global Fund – Retail Class (CHN0002AU) Report & Performance

Stocks rose broadly in August, led by the tech-heavy NASDAQ Composite Index which returned +4.68%. Value stocks generally lagged growth stocks in the U.S., as the Russell 1000 Value Index gained +2.57%. Overseas in Europe, the MSCI Euro Index rose +2.55%. Meanwhile, the yield on the U.S. 10-Year Treasury Note rose 9 basis points and commodities prices generally dropped as COVID-19 Delta variant concerns spread.

As the northern hemisphere progresses through the end of summer, Marsico continues to focus on several important developments, including continued progress on vaccination efforts, the impact of the Delta variant of COVID-19 in the U.S., and the policies of the Biden administration. All of these factors have potential impacts on the trajectory of economic growth going forward and in turn, on the fund. While the first piece of major legislation under the Biden administration, a $1.9 trillion COVID-19-related relief package, passed on party lines, a $1 trillion infrastructure bill recently received more bipartisan support in the U .S. Senate. On the horizon, a massive $3.5 trillion spending package introduced by Democrats is expected to be hotly debated in the coming weeks, which includes spending initiatives addressing significant, often polarising issues such as climate change and access to social services. Given the current climate in both the House and U.S. Senate, Marsico thinks that any policies that are ultimately enacted will likely be more moderate in nature.

In late July, the U.S Federal Reserve reiterated that its monthly purchases of $120 billion in bonds would continue until the U.S. economy achieves substantial further progress toward the Fed’s dual goals of low unemployment and inflation of around 2%. While the Fed said that “the economy has made progress toward these goals ,” Fed Chairman Powell added that the U.S. economy is still a good deal away from making ‘substantial further progress’ toward stable prices and maximum employment. Investors looking for clues as to the Fed’s timetable for scaling back purchases took Chairman Powell’s comments to indicate the Fed is seeking to buy more time before it makes any major policy adjustments.

As we turn to the second half of the year, the impact of COVID-19 continues to be felt. As Marsico highlighted for you last quarter, heading into spring there was significant enthusiasm and expectation for a U .S. and global economic recovery as vaccination rates climbed around the world and exposure -related immunity spread. At that time, 10-year Treasury yields had increased 83 basis points, and sectors that were flirting with bankruptcy in 2020 were leading market returns. However, as we transitioned through the second quarter, a distinctly different narrative began to emerge. Inflation concerns intensified for a time, led by tightness in global supply chains and the rapid rise of certain commodity prices, although it now appears they have largely peaked. While demand for certain sectors like housing remains strong, transaction volume has slowed as high prices and low supply have curbed buyer momentum.

U.S Federal Reserve officials addressed the emerging inflation concerns over the second quarter by acknowledging certain price pressures while suggesting they appeared to be somewhat transitory in nature, and by highlighting progress towards Fed policy goals. Yet the minutes of the latest Fed meeting indicated that Fed governors were open to reducing the pace of asset purchases earlier than previously anticipated, suggesting that they were sensitive to possible inflation concerns. Although markets were initially rattled by this potential shift in Fed perspective, the combination of apparent price peaks in different commodity markets and subsequent Fed commentary emphasising accommodation seemed to calm market and inflation fears to some extent.

Similar to April, Marsico witnessed positive gains across many asset classes and geographies in May. A relative outlier was the tech-heavy NASDAQ Composite Index, which dropped -1.65% during the month. Diving deeper into equity performance, they saw “value” stocks generally outpace “growth” stocks during the month, as the Russell 1000 Value Index rose +2.12% while the Russell 1000 Growth Index dropped 1.59%. Overseas markets were also generally positive, with the MSCI Euro Index rising +4.02%. The yield on the U.S. 10-year Treasury Note dropped a negligible 3 basis points to end the month at 1.59%. Commodities generally remained elevated or paused after the broad rally in commodities witnessed during April.

Despite the positive coronavirus-related news, investors continue to focus on inflation concerns, as supply shortages and recovering demand could potentially motivate the Federal Reserve to hike interest rates and curb asset purchases sooner. A key inflation gauge — the core personal consumption expenditures index — rose +3.6% in April from a year earlier, faster than the forecasted +2.9% increase.

Although the U.S. continues to battle new variants and different strains of COVID-19 across many parts of the country, significant advances with the vaccination of the U.S. population continue to be made. By the end of the second quarter, its anticipated that approximately 50% of the U.S. adult population will have received a vaccine, which should have a meaningful and cumulative impact on the economy in the latter half of the year.

Stocks generally rose in February as the worldwide COVID-19 vaccination effort accelerated, Johnson & Johnson received approval for its vaccine offering, and more details regarding President Biden’s proposed stimulus bill were announced. In spite of this momentum, Marsico witnessed a divergence between the performance of growth and value stocks as investors took profits in growth stocks, and rotated into stocks that are perceived to benefit more from the anticipated re-opening of the economy. More specifically, although the S&P 500 Index rose +1.84% during the month, the NASDAQ Composite Index rose a modest +0.10%. Diving deeper, Marsico saw value stocks outperform growth stocks by a wide margin, as the Russell 1000 Value Index rose +5.09% while the Russell 1000 Growth Index was -0.92%.

Overseas markets were also generally positive, with the MSCI Euro Index rising +3.12%, for example. The U.S. 10-year Treasury yield, which has been a keen focus of investors, rose to roughly 1.4% by month-end after soaring even higher earlier in the month and sparking a sell-off in stocks. Commodities generally rallied strongly, led by an anticipated surge in oil demand as economies move to re-open. As in prior months, Marsico continues to monitor the COVID-19 pandemic closely. Since the end of January, COVID-19 case counts globally have declined considerably as a result of factors including continued social distancing measures, mask compliance, vaccinations, and potential immunity from previous exposure. As of the end of February, global case counts have declined almost 50% and U.S. case counts have declined over 80% from their respective January peaks. Hospitalisations and daily deaths in the U .S., which are key indicators of case severity, have declined approximately 65% and 57%, respectively. As of month-end, 15% of the U.S. population had received at least one vaccination shot and 7.5% had received two shots. While case counts may fluctuate as a result of new, more contagious variants, Marsico expects hospitalisation and mortality rates to continue to decline as vaccination rates and potential immunity increase. In addition to strong data demonstrating efficacy in preventing infection, all three vaccines available in the U .S. today (manufactured by Pfizer-BioNTech, Moderna, and now Johnson & Johnson) have demonstrated a significant reduction in severe illness and a dramatic reduction in hospitalisations. Although it may be unlikely that COVID -19 will be eliminated, our view is that a reduction in spread and severity should end this year. Further bolstering economic momentum, a proposed stimulus bill that would inject $1.9 trillion into the U.S. economy is making its way through Congress. It’s called the American Rescue Plan Act, and after some additional tweaks by Congress is expected to be signed into law by President Biden within the next week.

At almost two trillion dollars, it’s one of the biggest spending bills in American history, with hundreds of billions of dollars earmarked for vaccination programs, expanded unemployment insurance, significant stimulus checks, state and local governments, school re-openings and more. On a portfolio-level, one of the top performing stocks during February was the Walt Disney Company (DIS) as the company’s pivot toward streaming services and excitement around its parks business led to strong performance . The company reported it had over 95m Disney+ subscribers in its most recent quarter, which illustrated the massive success their streaming business has had in just one year since launch. The company has also been investing heavily in its parks business during the pandemic and Marsico expects a massive acceleration in that business line as they believe there is significant pent-up demand to travel and Disney has premier family assets to accommodate that need.