What a difference three months makes. The fourth quarter was the worst quarter for the world’s stock markets since the 2008 Global Financial Crisis, but the first quarter of the new year was the best quarter in more than 10 years. According to management of the WCM Global Growth Limited fund, this dramatic reversal was due to the Federal Reserve’s flip-flop to a much more cautious stance.
WCM’s growth fund outperforms
The fund continues to look at its portfolio with a long-term mindset rather than positioning for short-term switches such as the one we’ve seen over the last six months.
Q4 hedge fund letters, conference, scoops etc
WCM's Global Growth fund was up 4.15% for the month of March, outperforming its benchmark, the MSCI All Country World Index (ex-Australia), which gained 1.36% for the month. CEO and Portfolio Manager Paul Black said the fund has outperformed its benchmark over the last one, three, six and 12 months and since inception.
Two of the six monthly declines were in the fourth quarter as the vast majority of the world's financial markets retreated. In his monthly update for March, Black also the fund has outperformed in 100% of down quarters since inception in March 2008.
The fund's biggest contributors in March were Italy's HDFC Bank, U.S. wholesale retailer Costco, Canadian e-commerce firm Shopify and U.K. food services provider Compass Group. WCM's two main detractors during the month were U.S. stockbroker Charles Schwab and France-based ophthalmic group Essilor.
A cautious Fed makes markets happy
Black cited the main catalyst for the dramatic rebound between the fourth quarter of 2018 and the first quarter of 2019 as the Fed's more cautious stance on future interest rate hikes. Chinese regulators also introduced new stimulus, which added to the calming effect invoked by the Fed's shift. Investors now seem less worried that the recent global economic slowdown could develop into a full-blown recession.
He noted that investor sentiment continues to waver along with macroeconomic and geopolitical uncertainty. Although no portfolio focused on global equities is safe from such pressures, WQG excludes "purchased on the basis of a short-term view on a particular macro event, or ones whose long-term performance is primarily dependent on the economic and or interest rate cycle." Due to this practice, the fund is structurally underweight on sectors like basic materials and financials.
Black emphasized their continuing long-term investment horizon. He noted that their buy-and-hold strategy worked out well over the last two quarters because they were able to capture sizable gains off the market's losses in the last three months of the year.
"When sentiment overshoots on the downside it presents opportunities to add to favourite positions and on the flipside — when it goes too far the other way — to reduce positions that have overshot on the upside," he explained.
The fund continues to consider two main criteria for inclusion in its portfolio. The first is a growing competitive advantage or expanding economic moat, while the second is "a corporate culture that supports the expansion of this moat."
This article first appeared on ValueWalk Premium
