PCS Global Equity Portfolio's five-year milestone
This year, the Old Mutual Wealth PCS Global Equity portfolio achieved a five-year track record and according to its most recent performance statistics (as at end September 2019), the portfolio is comfortably outperforming the ASISA Global Equity General unit trust peer group average and is in line with its benchmark (MSCI World Index) over various time periods. Given the volatile markets experienced over the last five years, this is an outstanding result and a significant investment milestone as it speaks to the resilience and veracity of the PCS investment process over the long term.
It is important to highlight that investment performance does not occur linearly and our Global Equity Portfolio has experienced various periods of underperformance. However, the key to success lies in staying the course and maintaining our conviction in our investment philosophy’s long-term success. At PCS, we believe that quality, valuation, diversification and time are the key drivers of superior long-term returns. As such, our Global Equity Portfolio invests directly into quality companies with a long-term track record of delivering sustainable earnings growth.
While the portfolio is largely positioned to benefit from the economic growth in emerging markets that will drive consumer spending across multiple sectors, it gains exposure to this investment theme through established multinationals listed in developed economies such as the US, UK and Europe. The portfolio is also exposed to structural defensive themes that exist in developed markets and this diversification has served the portfolio well over the last five years.
The last year has been particularly challenging, with the MSCI World Index just managing to keep its head above water following an extremely volatile final quarter in 2018. Geographically, the portfolio has benefited from its overweight position to the US, which has outperformed other regions this year. From a sector point of view, the portfolio has had no exposure to energy, which has been the only sector to produce a negative return over the past 12 months. Media & Entertainment and Technology are two sectors that have performed well, both of which are meaningful weights in the PCS Global Equity Portfolio.
While geographic and sector allocations are important considerations, they are secondary to finding great businesses that fit our quality investment philosophy. Starbucks is an example of such a business and has been a solid contributor to the portfolio since its inclusion in 2015. The stock returned close to 80% over the past year and we expect Starbucks to continue to grow revenue and earnings, largely supported by favourable growth prospects in China (where the business opens a new store every 15-18 hours on average) and the business’ focus on using technological innovation to enhance their customer value proposition. New additions to the PCS Global Equity Portfolio over the last year include a number of companies that may be considered as slightly more defensive, for example Diageo, L’Oreal and Reckitt Benckiser.
From a valuation perspective, while the UK and Europe appear interesting, many uncertainties remain and we therefore remain underweight to these regions. Given the two decades of economic stagnation, Japan has not really featured on global investors’ radar. However, we have increased the PCS Global Equity Portfolio’s exposure to this region over the past year, although we remain underweight. Improved corporate governance, transparency in financial standards, and an economy that is showing signs of recovery gives us the optimism that Japan will turn the corner.