The investment process behind the Talaria Global Equity Fund takes a high conviction, value biased approach to construct a portfolio of high quality, large cap companies from around the globe. Our unique investment methodology harnesses the benefits of consistent income generation and capital appreciation to grow investors’ real wealth.
The reality that interest rates might have to stay higher for longer drove bond yields to fresh, multi-decade highs and weighed heavily on investor sentiment. Supply concerns pushed oil prices significantly higher and further exacerbated the upside risk to inflation. At the same time, the AI hype that propelled tech stocks earlier in the year fizzled out somewhat and led to the tech sector underperforming the broader market. Risk indicators like the VIX rose, reminding investors that coming out of the woods unscathed is not a given amidst the most aggressive monetary tightening cycle in recent history.
Almost all major equity indices suffered losses in the third quarter. The broad-based S&P 500 and the tech-heavy NASDAQ fell by -3.6% and -4.1%, respectively. Asian markets were also weak with the NIKKEI down -4% and Hong Kong’s Hang Seng down -5.9%. In Europe, the Euro Stoxx 50 dropped by -5.1% with both the French CAC and the German DAX in the red. UK’s FTSE 100 was the only notable index that bucked the trend and finished up 1%. Against this challenging backdrop, the Fund delivered a positive quarter, gaining 2.55%, taking the 12-month return to 17.66% while maintaining substantially lower market risk.
Distributions: The Talaria Global Equity Fund paid a September 2023 quarterly distribution of 7.3 cents per unit taking its 12-month income return to 8.15%.
Energy was the only sector that delivered meaningful positive returns of +10.4% on the back of resurgent oil prices. Utilities were at the other extreme, suffering a -9.9% drop with a surge in bond yields the main culprit. Tech is also worth noting, down –6.2%, and underperforming the broader market for the first time this year as excitement around AI subsided. All other sectors were down low to mid-single digits in a broad-based market weakness.
Oil prices saw their strongest quarter since June of last year, increasing significantly by 28.5% and closing above the $90 mark. Constrained supply rather than a surge in demand is to blame with other commodity prices increasing only modestly (Bloomberg commodity index up just 3.3%). US treasury yields surged, with the 10-year increasing by a whopping 73 bps and closing the quarter at 4.57%, the highest since 2007. The VIX jumped by 4 points from June lows not seen since pre-COVID to 17.5 points. The USD gained against nearly all major currencies.
Two American firms contributed most to the Fund’s performance this quarter. On top was H&R Block, a tax preparation company with operations in the US, Canada and Australia. It delivered a better-than-expected margin and stronger buybacks that have propelled the shares materially higher. A close second was CF Industries, an agricultural fertiliser manufacturer. Strong results and the gas price differential between Europe and the US stabilising, supported the shares.
The largest detractor to performance this quarter was Swiss pharmaceutical giant Roche (see stock in focus). Despite recent weakness we see significant value and took advantage of the weakness to add to the position. Brazilian brewer Ambev was another detractor. Weakness in the Brazilian Real and a P/E derating on the back of worsening sentiment on Argentina, one of their key export markets, were some of the main drivers.
The fund initiated a new position in KDDI, the second biggest Japanese telecom. Low levels of debt provide balance sheet optionality while carrying a low valuation relative to earnings potential and growth. The fund exited two positions on valuation grounds after reaching our price targets – CNQ, a Canadian energy company, and Loews, an American insurance conglomerate.
What is Talaria Global Equity Talaria Global Equity is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - Large Value 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 Talaria Global Equity has Assets Under Management of 352.87 M with a management fee of 1.16%, a performance fee of 0.00% 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 Talaria Global Equity has returned 0.1% in the last month. The previous three years have returned 10.05% annualised and 9.4% each year since inception, which is when the Talaria 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 Talaria Global Equity first started, the Sharpe ratio is NA with an annualised volatility of 9.4%. The maximum drawdown of the investment product in the last 12 months is -4.15% and -25.34% 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 Talaria Global Equity has a 12-month excess return when compared to the Foreign Equity - Large Value Index of -9.18% and -2.06% 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. Talaria Global Equity has produced Alpha over the Foreign Equity - Large Value 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 Value Index category, you can click here for the Peer Investment Report.
What level of diversification will Talaria Global Equity provide?
Talaria Global Equity has a correlation coefficient of 0.82 and a beta of 0.58 when compared to the Foreign Equity - Large Value 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 Talaria Global Equity and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Talaria Global Equity with the Developed -World Index?
For a full quantitative report on Talaria Global Equity compared to the Developed -World Index, you can click here.
Can I sort and compare the Talaria Global Equity to do my own analysis?
To sort and compare the Talaria Global Equity financial metrics, please refer to the table above.
Has the Talaria 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 Talaria Global Equity?
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Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Talaria Global Equity. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - June 30, 2023 The trouble with birdwatching is that often what matters is just outside one’s field of vision.
A mob wearing raincoats focuses binoculars on a commonplace honeyeater just as a noisy scrub-bird, once thought extinct, fossicks around the corner. The unseen rarity pauses now and then to hold its sides laughing.
Investment is like this. Crowds jostle to gain exposure to the same asset while missing the greater prize. The late real estate investor Sam Zell sold his business for US$ 36 billion in 2006 before the bust of the GFC. He said of his approach, “I like to zig when everyone else zags”. People looked one way; he looked the other.
Mr. Zell was a one-off. His words would carry less weight if they came from the many contrarians who have lost by being wrong or being right too soon, which amounts to the same thing.
Nevertheless, whatever weight you attribute to this sentiment, it has the virtue of being consistent with economic intuition. Who does not believe that a hunter is more likely to find treasure where other hunters have not been before, or at least where they have not been for a long time? Talaria is not a contrarian investor. We look for what is below fair value not what is out of favour, but both value and contrarian approaches can take you to the same neglected places.
On which note, we spend most of this quarter’s investment insights talking about Japanese shares. These have been strong this year, reaching more than thirty-year highs, but they are still 19% below where they were nearly 35 years’ ago, having spent most of those intervening years as a sideshow for global equity investors.
We went into this year with 17.1% of our capital exposed to Japan. Our most recent initiation was early last year – we are not latecomers. As always, our rationale was stock specific rather than thematic, relating to the bird not the habitat. But we are far from blind to the bigger story and wanted to share our thoughts.
Away from Japan we consider the gap that has opened between the recently rising S&P 500 and the still falling index of leading economic indicators (LEIs). The two normally closely correspond. Just seven stocks, Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla have driven the rally in the S&P. Absent their strength, the gap would be indiscernible because the rest of the index’s constituents have contributed barely anything.
Despite the narrowness of the market and the weight of evidence pointing towards recession, our sense is that many investors have made a substantial cognitive leap. Tired of waiting, they have concluded that the strength in the headline index is a sign that weak economic growth is off the table. They believe the recession train has left the station because, in fact, it never arrived.
Performance Commentary - March 31, 2023 An eventful first quarter of 2023 was a tale of two halves. The first half started with a cyclicals and growth equities’ rally in January supported by lower yields and lower commodity prices. A risk-off February quickly followed as yields rose on the back of renewed inflation worries and hawkish central banks. The second ‘half’ came abruptly at the start of March when three regional banks in the US failed. The result was a drop in yields, underperformance in financials and a bounce in a concentrated set of big-winner, rate-sensitive growth stocks. Despite the noisy start to the year, all regions saw equities close the quarter in the green. In the US, the epicentre of the banking crisis, the tech-heavy, rate-sensitive (and financials-lite) NASDAQ returned 16.8% and significantly outperformed the broad-based S&P500 Index (up 7.0%). In Europe, one of the main drivers was a collapse in gas prices which pushed all major indices up despite weakness in financials. Germany’s DAX and France’s CAC were up 12.2% and 13.1%, respectively. UK’s FTSE100 (heavy in both financials and energy stocks) was notably weak, up just 2.4%. In Asia, Japan’s Nikkei delivered a solid 7.5% while China’s Shanghai Composite returned just 5.9%. Initial excitement of China reopening in January was a damp squib and gave way to weak performance in February and March. Against this messy backdrop, Talaria’s Global Equity Fund delivered a positive quarter, gaining 5.98% in AUD while maintaining substantially lower market risk. Strong positive portfolio breadth (24 stocks advanced and only 6 declined), a few positive idiosyncratic stock events and limited exposure to financials and energy stocks helped drive the performance.
Performance Commentary - December 31, 2022 The fourth quarter finally brought some respite to financial markets. Improvement in sentiment from the September lows and easing energy prices in Europe renewed a risk-on trading environment. Equity markets were up across the globe with cyclical sectors outperforming. Volatility eased and the US dollar declined against a basket of major currencies. Inflationary pressures and central bank hawkishness remained but the market shrugged off their impact on economic activity.
Across all regions, old economy, high cash yielding cyclicals outperformed while tech underperformed. This dichotomy was most evident in the US where the broad-based S&P500 (up 7.1%) significantly outperformed the tech-heavy NASDAQ (down 1.0%). Indices in Europe, dominated by old economy stocks and helped by easing gas prices, gained the most in absolute terms. Germany’s DAX and France’s CAC were up 14.9% and 14.3%, respectively. Asia lagged, partly driven by lockdown induced economic uncertainty in China (Shanghai index up 2.1%). Japan’s NIKKEI was up just 0.6% after several quarters of stronger relative performance earlier in the year.
Talaria’s Global Equity Fund delivered a positive quarter, gaining +4.65% while maintaining lower market risk. The 12-month performance of +8.27%, is a more than 20% outperformance of the global index benchmark (down -12.52% in 2022).
Distributions: The Talaria Global Equity Fund paid a December 2022 quarterly distribution of 7 cents per unit taking its 12-month income return to 7.28%.
Higher-beta sectors (energy, industrials, materials, and financials) outperformed in the quarter, gaining between 15.4% and 18.6%. Growthier sectors underperformed with IT up just 4.9%. Defensive sectors were all up low double digits. The standout underperformer and the only sector in the red was consumer discretionary (down 2.5%), driven by the terrible performance of its two largest constituents – Amazon (16% weight, down 25.7%) and Tesla (6.6% weight, down 53.6%).
Investor sentiment improved in the fourth quarter, helped perhaps by a loss of 4.7% in the value of the USD against a trade-weighted basket of currencies. The VIX dropped 10 points from 31.6 to 21.6, near the lows of 2022 and in line with its 30-year average. The US 10-year yield at 3.87% remained elevated but almost unchanged versus Q3 as monetary policy remained hawkish in the face of high inflation. The broad-based commodities index and oil specifically were both up by just one percent but gas futures, particularly important in Europe, came down by 35%. The fund’s holding in Mexican-based retailer, Fomento Mexicano Economico (FEMSA) was the biggest contributor to performance this quarter. In addition to its strategic holdings in global brewer Heineken (14.8%) and the world’s largest Coke bottler, CocaCola FEMSA (47.2%), FEMSA owns one of the world’s largest convenience store networks with some 20,000 ‘OXXO’ branded sites across Mexico. This network delivers strong same-store sales and good margin expansion. We still see upside to the stock, even after share price strength.
Performance Commentary - September 30, 2022 There was no place for investors to hide in the third quarter with all major asset classes in the red. A hawkish Fed statement at Jackson Hole and a hot CPI reading in August crushed hopes for a mooted pivot. The response in the bond markets was an emphatic spike in yields, with the US 10 year closing the quarter 81bps higher at 3.82%, the most in more than a decade. Higher rates led the rest of the market down with equities, corporate debt, commodities and real estate all closing lower. The USD remained very strong against a global basket of currencies, exacerbating problems for emerging and developed economies alike. China’s Shanghai Composite and Hong Kong’s Hang Seng were the worst performing major equity indices (down -11% and -21.2%, respectively) as the Chinese economy slowed and investors were jittery ahead of the 20th National Party Congress in October. In the US the S&P 500 and the tech heavy NASDAQ were both down -5.3% and -4.1%, respectively, erasing gains of more than 10% earlier in the quarter. Germany’s DAX led the declines in Europe (down -5.2%) as the most exposed to war induced gas shortages. UK’s FTSE100 and France’s CAC followed closely with -3.8% and -2.7%, respectively. Dovish monetary policy in Japan supported the Nikkei again, down just -1.7%.
Against this backdrop, the Fund again delivered a solid quarter, gaining 0.82% while maintaining substantially lower market risk. The calendar year-to-date performance of +3.46% is a more than 19% outperformance of the global index benchmark which was down -15.84%.
Performance Commentary - June 30, 2022 Major equity markets entered bear market territory this quarter extending their poor start to the year. Persistently high inflation, increasingly hawkish central banks and creeping expectations of a global slowdown have weighed strongly on the most expensive and heavily owned indices. Despite the weakness, the medium-term outlook for equities continues to be challenging given still high absolute valuations and inflation-induced rate rises into a rapidly decelerating economic environment.
Weakness across most equity markets continued in the second quarter. The tech heavy NASDAQ has led the decline with a whopping 22.4% drop followed by the broader based but still expensive S&P500 with a 16.4% drop. Europe was down with both the German DAX and French CAC falling by 11.3% and 11.1%, respectively. Japan fared better in relative terms with the Nikkei falling just 5.1%, helped by the weakening yen and still accommodative central bank policy. China’s Shanghai Composite was the only major index in the green, climbing 4.5% on the back of easing COVID restrictions and rumours of fiscal stimulus.
Despite these challenging market conditions Talaria’s Global Equity Fund delivered a strong quarter, gaining 2.49% while maintaining substantially lower market risk.
Performance Commentary - March 31, 2022 Equity markets came under significant selling pressure during the quarter as Russia’s invasion of Ukraine, elevated inflation and increasingly hawkish central banks all weighed on sentiment. Despite seeing some reprieve in March, the medium-term outlook for equities remains challenging given high starting valuations and the paradox of inflation-induced rate rises into a rapidly decelerating economic environment.
While most equity indices fell over the quarter, the severity and indeed cause of weakness, varied across regions. Rate rise concerns weighed disproportionally on US markets given their higher multiples with the NASDAQ and S&P500 down 9.1% and 4.9%, respectively. Geographic proximity to hostilities alongside economic exposure to Russia/Ukraine appeared to be the only determinant of performance in Europe. With that, the German DAX was the worst performer, down 9.3%, followed by the CAC40, down 6.9%, while the UK FTSE actually finished up 1.8%. In Asia, US de-listing friction, ongoing economic softness, and geopolitical tensions saw the Shanghai Composite fall 11% while Japan’s Nikkei225 was lower by 3.4%. Quarterly performance also varied significantly on a sector basis. The absolute standout was Energy, up 30% as supply risks and more robust demand saw oil prices rally 40%. Broader commodity price inflation also helped Materials, up 1.5%, while Utilities benefitted from risk-off positioning to finish up 0.8%. In contrast, Consumer Discretionary, Telco and IT all finished down more than 10%. There were plenty of drivers with waning consumer confidence and margin pressure weighing on Consumer stocks, while rate rises, and a few disappointing results impacted the Telco and IT sectors. The AUD finished up 3% against the USD courtesy of commodity price strength with the Bloomberg Commodity Index up 25%. VIX finished the quarter largely unchanged at 19, having reached a high of 30 in early March following Russian’s invasion of Ukraine. Yields on 10-yr US Treasuries closed at 2.39%, up 88bps since the beginning of the year.
Against this backdrop, the Fund performed well delivering a total return for the March quarter of 0.13% while the 12 month return was 12.60%. This has been achieved with substantially less market risk.
Performance Commentary - June 30, 2021 By any measure, bond yields in developed economies are close to historic lows. TIPS, the US 10-year inflation linked security, currently yields a -0.83%, explicitly showing the market’s acceptance of negative real returns on these treasuries. Given that government bonds are the primary reference points for other asset classes, the trend of persistently falling rates has been to drive prices up and yields down across a variety of asset classes including global equities.
For example, the S&P 500 has grown in price nearly 7 times faster per annum than have earnings in the last seven years to leave it with a current real earnings yield of zero, the lowest it has been since 1985 – and the start of the persistent secular decline in bond yields.
In the waterfall chart below, we drill down to show the points’ change in the S&P 500 from 2014-2020 and the compound annual growth rate of various constituents. What stands out is that the share price has grown by more than 10% annually whilst earnings are broadly flat (Exhibit 1)
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