Global equity markets continued to march higher in the third quarter, despite another mid quarter correction associated with trade tensions between the US and China. All the other main asset classes posted positive returns also, as dovish central bank monetary policy provided a buffer against the ongoing trade dispute and lacklustre economic data. There are ongoing signs of a late-cycle economy, with the current expansion the longest on record, so a certain level of concern is warranted. Heading into the fourth quarter any signs of a Brexit or trade breakthrough could lead to a rally into year end. We remain more concerned about valuations and long term returns and will manage the portfolio with that in mind.
We have discussed the bifurcation in equity market returns for some time now. Our observation is that since the Global Financial Crisis (GFC), market participants have been chasing asset classes and investment styles that are expected to have lower volatility or lower drawdown risk. It’s not surprising many investors have crowded towards quality and visible growth –albeit irrespective of price. The Global Equity Fund commentary addresses this dynamic in more detail.
The character of the Setanta funds is one of ‘downside protection’. In seeking to achieve this, we are guided by the importance of a) being risk averse; b) being highly selective; and c) having a long-term horizon. Our recent purchase of Viscofan, a Spanish-based maker of meat casings, discussed in the newsletters provides a good insight into how we seek to put these principles into practice in our investment process.
The Setanta fund commentaries (links below) also review portfolio activity and describe the positioning of the funds looking ahead. We hope you find the newsletters interesting.