The portfolio had another very strong month of performance, with a return of 3.9%. This was slightly below the 4.2% return of its benchmark MSCI All Country World (ex-Australia) Index. However, the portfolio has delivered returns well in excess of the benchmark over the previous three, six and 12 months.
Following on from a strong first quarter, global equity markets continued to move higher in April. The primary macroeconomic drivers of this strong performance have been the more accommodative position adopted by the US Federal Reserve and signs of stabilisation in Chinese economic growth.
The first quarter corporate earnings season has, thus far, proved to be a positive for markets, with early indications being that aggregate earnings will exceed analyst forecasts.
At a regional level, Eurozone equities led the way followed by the US. The Chinese equity market, which was one of the strongest performers in the first quarter, gave up some ground in April.
In terms of sectors it was a positive month for some of the more cyclical parts of the market including consumer discretionary and industrials. Defensive sectors on the other hand, including healthcare and consumer staples, underperformed in April.
The largest positive contributors to returns in April for the portfolio included Swedish industrial group Atlas Copco, Canadian ecommerce specialist Shopify and French ophthalmic firm Essilor.
Holdings that weighed on performance during the month included Agilent, the US analytical laboratory instrument manufacturing company, as well as medical technologies firms Stryker and Boston Scientific.
The strong start which equity markets have made to 2019 has caught many market participants flat footed. 2018 ended with the worst December performance since 1931 and the worst full year for the market since 2008. Market sentiment was hugely bearish, and many investors responded by reducing their allocation to equities in favour of cash. These same investors are now wondering whether it is time once again to increase their exposure to equities.
WCM’s investment approach is not dependent on accurately forecasting market direction or making asset allocation decisions between equities and cash. Throughout the recent market gyrations, the portfolio’s allocation to cash remained at the same level of circa 5.0%. More importantly, the portfolio’s circa 95% equity exposure was and remains solely on companies WCM believes have expanding economic moats and appropriately aligned corporate cultures.