Platinum International Fund (PLA0002AU) Report & Performance

The Fund (C Class) returned 17.7% for the year, a 13.9% outperformance of the market, which returned 3.8%.1 The Fund’s long portfolio performed well, returning 10.7% (for an overall contribution to performance of 8.4%), which was supplemented by a strong 8.8% contribution from our short positions.2 The year was characterised by the deflating of the speculative bubble in growth stocks and illustrates the benefit of Platinum’s investment approach of seeking out opportunities in areas that are ‘out of favour’ with investors and avoiding the ‘much-loved’ investment ideas of the day. We believe the past year represents a strong start to the Fund’s performance in the current bear market in global equities.

The Fund returned 5.4% for the quarter, compared with the market’s return of 8.7%. Market returns in local currency terms were similar across regions, with Europe up 8.5%, North America up 7.4% and Japan up 7.1%, with Asia ex-Japan being the exception, up only 4.5%.3 However, there were significant divergences by sector, as investors responded to the failures of Silicon Valley Bank and Credit Suisse by seeking out perceived safe havens in growth stocks and selling economically sensitive sectors. Information Technology was up 20.3% while Energy fell 3.5%. Those sectors in the eye of the storm also performed poorly, with Financials down 1.8% and Real Estate up 0.5%.

The Fund (C Class) returned 10.4% over the quarter.

The US equity market underperformed the rest of the world during the quarter, as markets started factoring in the impact of tighter fiscal and monetary policies on future company earnings. By region, in local currency terms, Europe led the way, returning 10.6%, followed by Asia ex-Japan (+8.2%) and North America (+6.9%).

In line with these outcomes, our European holdings dominated the largest contributors to performance, with financial stocks Intesa Sanpaolo (+22%), Beazley (+21%), Erste (+32%) and Raiff eisen Bank International (+26%) amongst the best performers. In China, online travel agent Trip.com (+26%) was a strong performer on the back of China’s pivot away from its zero-COVID policy. Heavy-duty truck engine manufacturer Weichai Power (+41%), insurer Ping An Insurance (+32%) and Tencent (+25%) also provided strong performance. Short positions contributed 0.9% to returns.

Key detractors at an individual stock level included Allfunds Group (-14%), which was impacted by volatile markets and the sell-down of significant stakes by two large shareholders, and precision components manufacturer MinebeaMitsumi (-8%), which weakened on a stronger Japanese yen.

The Fund (C Class) returned -1.3% over the quarter.¹ The largest contributors to performance were an eclectic mix, including InterGlobe Aviation (+16%), UPM-Kymmene (+12%), and Microchip (+5%). European fi nancials (Raiffeisen Bank +18%, Beazley +13%, Allfunds +3%) also contributed to performance. Shorts contributed 1.3%. Our Chinese holdings were key detractors from performance over the quarter, with major holdings Weichai Power (-40%), Alibaba (-30%), and Tencent (-25%) falling sharply.

Over the year, the Fund returned -6.4% compared with the market’s return of -10.9%. In the fi rst nine months of 2022, a period that coincides with the beginning of the current bear market in global equities, the Fund returned -6.6%, well ahead of the market’s decline of -15.9%. When examining the performance of global stock markets over the last 12 months, there have been some drivers of market performance that we have clearly anticipated and for which the portfolio has been well positioned, and others for which the portfolio holdings were not ideal.

Having said that, as long-term investors, we are making decisions based on views of the long-term earnings power of businesses, knowing full well that short-term economic trends may not be in our favour. Indeed, it is often the fear of short-term trends that provides the greatest opportunities. Still, given the extraordinary macroeconomic environment that has been the backdrop for investing over the last 12 months, it is worth examining how these variables have contributed to or detracted from the Fund’s returns.

The Fund (C Class) returned -1.9% for the quarter and -11.5% for the year.¹

The economic situation in Europe is deteriorating. Most worryingly, consumer price inflation accelerated to 8.1% per annum in May. This compares to a rate of under 2% a year ago.²

A silver lining is that underlying or ‘core’ inflation (excluding food, energy, alcohol and tobacco) is lower in Europe (3.8%) than in the United States (6.0%). The implication is that this affords the European Central Bank the ability to tighten monetary conditions with less urgency and aggression than the US Federal Reserve. This will see less pressure applied to asset owners and large borrowers, namely governments.

However, one key reason that core inflation is lower in Europe is that wage growth is running at a comparatively pedestrian 2.7% per annum. While this may spare the region from more aggressive rate hikes, it puts ordinary households under signifi cant stress as their purchasing power erodes. Indeed, real household incomes are currently falling 5.4% per annum.

Unsurprisingly, consumer sentiment has plummeted to levels only previously observed during times of crisis.

For now, the unemployment rate remains low, by European standards, at 6.8%. This should be supported in the near term by business sentiment, which remains comparatively buoyant despite having pulled back from recent highs.

However, these data are backward-looking. It is unrealistic to expect this situation to persist with a strained household sector, the war in Ukraine, ongoing supply-chain disruptions, rolling lockdowns in China, rising interest rates and potential energy shortages.

Against this backdrop, the relatively resilient performance of European equity markets – at least up until early June – has been remarkable. We took the decision in late March to

position the portfolio much more defensively. Our net

invested position was reduced from 73% to as low as 50% during the quarter, achieved through a combination of

individual stock shorts, index shorts and holding cash. This defensive positioning made a strong positive contribution to our performance.

The best-performing sectors in Europe over the last three months were Energy, Consumer Staples, Utilities and

Pharmaceuticals. The Fund has very little exposure to these sectors, which significantly hurt our relative performance.

Within the Fund, our best-performing stock was Sardinian oil refi ner Saras (+99%). Saras is benefiting from skyrocketing refi ning margins. The elevated margins reflect an underlying erosion of supply conditions, including economic sanctions on Russia, lower refining activity in China, refinery closures in many markets, and extended supply chains as traders

struggle to redirect products with limited shipping capacity.

Saras’ position as a coastal refinery in the middle of the Mediterranean with the ability to process a broad array of crudes bestows it with considerable flexibility over both inputs and outputs. This leaves it well-placed to benefit under such conditions.

The Fund (C Class) returned 2.5% for the quarter, well ahead of the market’s 7.9% decline.¹

The key factor driving markets was the decision by the US Federal Reserve (Fed) to sharply increase interest rates from 0.5% to 1.75% over the course of the quarter in response to the accelerating rate of inflation. This resulted in a signifi cant setback for the popular growth stocks that have led the bull market over the last three years. Notably, the US market was the weakest of the developed markets over the period (-17% in local currency terms), reflecting its heavy weighting to such companies. Asia (-6%), particularly China (+5%), was the notable outperformer for the quarter.²

Our short positions were the strongest contributor to the Fund’s performance, adding 7% to returns. On the long side, many of our Chinese investments provided a positive return, a good outcome given market circumstances. Online travel agent Trip.com (+19% over the quarter), parcel delivery giant ZTO Express (+10%) and property developer China

Overseas Land & Investment (+6%) were key contributors to performance. Contributors outside of China included energy companies Saras (+99%) and Suncor Energy (+11%), global insurance player Beazley (+19%) and Japanese bathroom fixtures manufacturer Lixil (+11%).

Detractors from performance included Allfunds (European fund platform, -30%) and St. James’s Place (UK wealth management, -24%). Both businesses have revenue streams based on assets under management, and as such, falling stock markets reduce short-term earnings. MinbeaMitsumi

(industrial and electronic components, -14%) and Microchip Technology (semiconductors, -23%) saw share price declines due to concerns around slowing global growth prospects.

The Fund (C Class) returned -7.7% for the quarter, marginally ahead of the market’s -8.4% return. The performance within the Fund and markets differed dramatically over the course of the quarter. In the period prior to Russia’s invasion of Ukraine, the Fund returned 2.3% while the market fell -8.6%. This period was marked by rising interest rate expectations as the global economy continued its post-pandemic recovery.

During these initial weeks of the quarter, expensive growth stocks performed poorly with the Fund benefiting from short positions in these types of companies. Post the invasion, stocks that were poised to benefit from the economic recovery, such as cyclicals, travel stocks and European banks, experienced significant price falls, as did Chinese companies, reflecting concerns about geopolitical risk and the struggling Chinese economy as it faced a new wave of COVID-19 infections. Investors once again favoured the growth names, with the growth-heavy US Nasdaq 100 Index finishing up 10% over this period. During the final weeks of the quarter, the Fund ceded its strong absolute and relative performance of the earlier period to finish slightly ahead of the market.