The Alphinity Global Equity Fund offers a select portfolio of leading global companies identified as undervalued as they enter an earnings upgrade cycle. Highly diversified across countries, sectors and currency.
The rapid rise in bond yields in the recent quarter had an impact across equity markets and happened against a backdrop of mixed macro signals. The resilient US labour market and apparent bottoming of both US manufacturing PMI as well as the global earnings cycle, all indicate that the economic growth outlook is certainly stronger than feared earlier in the year. They also point to a growing cyclical recovery in stock markets. Nevertheless, risks from the lagged, cumulative impact of Fed rate hikes remain, and elsewhere macro data has been more mixed, and we’re observing an unusually wide range in market forecasts for economic growth in 2023-24. So, while the growth outlook is certainly stronger than feared at the start of the year, visibility into 2024 remains low.
Corporate earnings reflect a similar picture. With fears of an imminent recession abating, negative revisions have slowed significantly and in fact inflected slightly positive recently. The second quarter reporting season was better than expected, with beats, both by number and magnitude, higher than normal. Forward guidance remained more cautious, driving mixed price responses, however despite this, earnings expectations for both 2023 and 2024 have edged higher. For example, EPS revisions for ‘23/’24 earnings are +0.3%/+0.6% over the last three months, which is a notable improvement from the previous negative trend of -2% to -3% per quarter.
What is Alphinity Global Equity Alphinity Global Equity is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - Large Fundamental Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Alphinity Global Equity has Assets Under Management of 79.11 M with a management fee of 1%, a performance fee of 0.41% and a buy/sell spread fee of 0.5%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Alphinity Global Equity has returned -2.01% in the last month. The previous three years have returned 9.76% annualised and 11.65% each year since inception, which is when the Alphinity Global Equity first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Alphinity Global Equity first started, the Sharpe ratio is NA with an annualised volatility of 11.65%. The maximum drawdown of the investment product in the last 12 months is -3.92% and -18.61% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Alphinity Global Equity has a 12-month excess return when compared to the Foreign Equity - Large Fundamental Index of 6.47% and 1.87% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Alphinity Global Equity has produced Alpha over the Foreign Equity - Large Fundamental Index of NA% in the last 12 months and NA% since inception.
What are similar investment products?
For a full list of investment products in the Foreign Equity - Large Fundamental Index category, you can click here for the Peer Investment Report.
What level of diversification will Alphinity Global Equity provide?
Alphinity Global Equity has a correlation coefficient of 0.91 and a beta of 1.05 when compared to the Foreign Equity - Large Fundamental Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Alphinity Global Equity and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Alphinity Global Equity with the Developed -World Index?
For a full quantitative report on Alphinity Global Equity compared to the Developed -World Index, you can click here.
Can I sort and compare the Alphinity Global Equity to do my own analysis?
To sort and compare the Alphinity Global Equity financial metrics, please refer to the table above.
Has the Alphinity Global Equity been independently verified by SMSF Mate?
This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
How can I invest in Alphinity Global Equity?
If you or your self managed super fund would like to invest in the Alphinity Global Equity please contact Level 2, 5 Martin Place, Sydney NSW 2000 via phone +61 133 566 or via email info@challenger.com.au.
How do I get in contact with the Alphinity Global Equity?
If you would like to get in contact with the Alphinity Global Equity manager, please call +61 133 566.
Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Alphinity Global Equity. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 Continued resilience in US economic data and a notable drop in inflation have together raised hopes that the US Federal Reserve (Fed) is done hiking rates and that a ‘soft landing’ for the US economy is achievable. At the same time after over two years of steady deceleration, the latest US manufacturing Purchasing Managers Index (PMI) of 47.6 appears to be recovering from trough levels historically associated with cyclical recovery. These are all encouraging signs. Nevertheless, risks from the lagged, cumulative impact of Fed rate hikes remain and elsewhere data has been more mixed. China continues to struggle with a deepening property crisis and recent growth and inflation data in Europe has also been somewhat disappointing. So, while the growth outlook is certainly stronger than feared at the start of the year, visibility into 2024 remains low.
Corporate earnings reflect a similar picture. With fears of an imminent recession abating, negative revisions have slowed significantly and in fact inflected slightly positive recently. The second quarter season was better than expected, with beats, both by number and magnitude, higher than normal. Forward guidance remained mostly cautious, driving mixed price responses, however despite this, earnings expectations for both 2023 and 2024 have edged higher. For example, EPS revisions for ‘23/’24 earnings are +0.3%/+0.4% over the last three months, which is a notable improvement from the previous negative trend of -2% to -3% per quarter. At a sector level, dispersion is relatively wide and mixed from a cyclical perspective. Materials, Energy, Real Estate and Health Care all sharply negative, while Consumer Discretionary, IT Hardware & Semiconductors and Communication services have seen positive revisions.
So far this year, leadership has rotated back to growth stocks and away from defensives sectors such as Utilities, Real Estate and Consumer Staples. A notable feature has been extremely narrow leadership breadth, with the socalled ‘magnificent seven’ group of mega-cap growth stocks, which make up ~27% of the S&P 500 market capitalisation, having delivered ~72% of the YTD return through to end August (albeit an improvement from 112% at the end of May 2023). There has also been strength in some cyclical industry groups recently including Autos, Semiconductors, Retail and Capital Goods, which have responded positively to better-than-expected growth and rising bond yields. This is a complicated and challenging backdrop for financial markets, with clear and sustained earnings leadership remaining elusive.
Activity during the month was mostly stock specific. We initiated a new position in Novo Nordisk following positive trial results and higher conviction about the long-term potential for their obesity drugs to also address other comorbidities. We also added a position in Ferrari, a high-quality luxury automobile manufacturer with limited cyclicality. Fortinet and Keysight both reported broadly in-line results, however order/billings trends and guidance for both were unexpectedly weak. Earnings recovery is uncertain and consequently we exited both positions.
Overall, the portfolio remains well-positioned in strong growth stories, combined with some flagship defensives. We have recently added to our cyclical exposure where we have established stock-specific, fundamental earnings conviction; however, the portfolio overall remains relatively less invested in cyclical stocks. The investment team is again travelling widely overseas to meet companies across different sectors and geographies as the earnings cycle continues to evolve.
Performance Commentary - July 31, 2023 Economic data has improved recently, with GDP expectations rising, resilient labour markets, strong consumption, inflation beginning to fall, and financial markets generally responding well to tighter financial conditions. We continue to see potential risks from the lagged, cumulative impact of Fed rate hikes, but we are also aware that some normally reliable economic indicators are already at low levels and the outlook for growth appears somewhat better than many feared at the start of the year. The US manufacturing Purchasing Manager’s Index (PMI) peaked well above 60 in 2021, and after a two-year downcycle it is now at ~46; while deep in contractionary territory this is approaching levels which have historically been associated with cyclical bottoms.
From a corporate earnings perspective, and after a similar nearly two-year period of negative revisions, there also appears to be some early signs of stabilisation. The second quarter reporting season has so far been better than expected with beats, both by number and magnitude, higher than normal. Nevertheless, generally cautious forward guidance has met with mixed price responses and muted earnings revisions. For example, consensus earnings expectations for both 2023 and 2024 have barely moved over the last three months (+0.1% respectively), although flat estimates are a marked improvement from the previous negative trend of -2% to -3% per quarter. Meanwhile, underlying sector dispersion is relatively wide. Materials and Energy have seen significant negative revisions reflecting lower commodity prices, while Consumer Discretionary, Communications and Tech Hardware are amongst the sectors with positive revisions for both years. More defensive sectors like Property, Health Care and Consumer Staples continue to slip in relative earnings strength. While there are some encouraging signs, and the negative earnings cycle is relatively mature by historical standards, our stock analysis and recent research trips suggest it’s still too early to call a sustained turn in the earnings cycle.
Performance Commentary - June 30, 2023 Economic data has improved recently, with GDP expectations rising, resilient labour markets, inflation falling, and financial markets generally responding well to tighter financial conditions. We still see risks of a lagged, negative impact from US Federal Reserve (Fed) rate hikes, but we are also aware that some normally reliable economic indicators are already at low levels. The US manufacturing PMI peaked well above 60 in 2021, and after a twoyear downcycle it is now 46, approaching levels historically associated with cyclical bottoms.
Performance Commentary - May 31, 2023 Surprisingly good economic data, combined with better than expected first quarter earnings, saw recessionary concerns take a backseat in May; however, we continue to believe that near-term growth risks are skewed to the downside amid the lagged impact from Fed rate hikes, tightening credit conditions after the U.S.
regional banking crisis and a challenging outlook for corporate earnings. Labour markets have also remained surprisingly resilient so far, however there are some early signs of weakening and we expect inflation will carry on moderating as the impact of lower energy and commodity prices flow through, which could drive some further downgrades to earnings expectations. Consequently, we continue to believe we are close to at least a pause in Fed rate hikes, although we acknowledge that there are significant tail risks around this outlook, ranging from stickier inflation and a higher-thanexpected peak in rates, to a sharp pivot in monetary policy and an eventual cyclical recovery.
Performance Commentary - February 28, 2023 The market outlook continues to be uncertain and volatile. Our central scenario remains a period of weaker economic growth and declining inflation, which should drive further downgrades to earnings expectations, and at least a pause in central bank rate hikes. However tail risks around this outlook remain, including stickier inflation and a higherthan-expected peak in rates. Consequently, market leadership remains unclear, with significant questions persisting around the ultimate magnitude of downside in both economic growth and corporate earnings.
Reported Earnings Per Share (EPS) in the US fourth quarter reporting season was broadly in-line with sharply lowered expectations, however concerns around the outlook for margins, and generally cautious forward guidance from management, have prompted analysts to continue lowering estimates for 2023. Global earnings consensus has fallen by – 1.8% over the last month and -3.1% over the last three months, with most sectors seeing negative revisions. Defensive sectors continue to mostly outperform, with Energy, IT Hardware and Materials experiencing the sharpest downgrades and Utilities, Financials and IT Software holding up relatively well. A full reset in the outlook for earnings continues to be one of the outstanding factors necessary to resolve new market leadership.
Overall portfolio positioning is largely unchanged, with our defensive flagship stocks remaining a key component, in combination with various specific growth stocks. Activity during the month was driven mainly by idiosyncratic factors. We chose to exit positions in Merck and Nestle, with both having performed relatively well in a difficult market environment, but where we view the risk-reward as increasingly unfavourable in the context of rising valuations and expectations. A new position was initiated in Airbnb, which is a leading, scalable, asset-light growth business trading at an attractive valuation. We also invested in Freeport McMoran as we expect strong operational execution and rising copper prices to continue driving positive earnings revisions.
Elsewhere we trimmed a long-held position in American Tower to reflect persistent rate headwinds and took some profit in Mercedes and LVMH after a period of particularly strong performance. Keysight and Chubb were also trimmed to recognise some emerging risks to earnings. We continue our focus on bottom-up, fundamental research, and are preparing for a range of potential future paths with a strong bench of new ideas.
Performance Commentary - January 31, 2023 The market outlook remains volatile, and after a tumultuous 18 months, further significant change is likely in 2023. A central scenario is a period of weaker economic growth and declining inflation, which should drive further downgrades to earnings expectations, and at least a pause in central bank rate hikes. Financial markets are already beginning to discount this outcome; however market leadership remains in flux given uncertainties around the downside in both economic growth and corporate earnings, the persistence of wage inflation, and the impact of Chinese re-opening.
During January, global earnings forecasts dropped by – 1.5%. Noticeably, the US reporting season has been weaker than usual, with forward guidance from many companies also disappointing. Over the last three months, global earnings revisions have -1.8%, with most sectors seeing downgrades. Previous leaders Technology and Communications are now clear laggards, and Energy is seeing accelerating downgrades due to the lower oil price, although some defensive sectors like Utilities, Real Estate and Consumer Staples are holding up relatively better. A reset in the outlook for earnings is one outstanding factor necessary to fully resolve new market leadership.
The overall portfolio positioning is largely unchanged, with our defensive flagship stocks remaining a key component, in combination with various specific growth stocks. Portfolio activity was limited during the month. We continued to trim a few stocks which have done very well and are seeing rising valuations and expectations, such as UnitedHealth and LVMH. We also trimmed Danaher on its current orderbook headwinds from postCovid normalisation, as well as Apple after a quarterly report showing market expectations on key consumer products are still a bit too high. We added to our position in Starbucks on signals that the re-opening of China and return-to-office trend in the US is setting the company up for a positive 2023. We continue our focus on bottom-up, fundamental research, and are preparing for a range of potential future paths with a strong bench of new ideas.
Performance Commentary - December 31, 2022 The outlook remains challenging, and after a particularly tumultuous last 18 months, further significant change is likely over the year ahead. Our central scenario is a transition from weaker economic growth and rising inflation, towards an environment where both growth and inflation will likely decline, which should drive further downgrades to earnings expectations, and at least a pause in central bank rate hikes. Financial markets are already beginning to discount this outcome; however, market leadership remains unclear given uncertainties remain around recession risks, downside in corporate earnings, the persistence of wage inflation and the impact of Chinese reopening.
Our fundamental analysis and company meetings suggest that further earnings downgrades are likely, with margins potentially the biggest negative surprise. Consensus expects positive Earnings Per Share (EPS) growth in 2023 for the MSCI World Index (+2.8% y/y), including margin expansion, which looks unlikely. Our work on earnings cycles indicates that our Global Diffusion Index bottoms 3- 6 months before actual earnings revisions, which is usually associated with new cyclical leadership.
Portfolio positioning is largely unchanged with our flagship defensive stocks remaining a key component, in combination with various specific, idiosyncratic growth stocks.
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