Stock markets around the world spent most of the past four weeks continuing the recovery from their March lows.
This took American stocks back to being unchanged for the year, before a reaction set in over the past week as the reality of some COVID-19 flare-ups struck home. The US NASDAQ Composite is still ahead by around 10% for the year, reflecting the performance of big tech.
We have been more active than usual within the Fund this month, which, overall, has moved to a slightly more ‘defensive’ stance. Of the major sectors, we have further increased our (over) weighting to Staple Goods and to Pharmaceutical & Healthcare while adding to Technology, but, in contrast, we no longer have any exposure to Oil Production & Services companies. Gone from the portfolio are the remaining two oils: Total and Phillips 66, while, in a similar vein, we sold the remaining BHP Group to focus on Rio Tinto (our sole holding in the mining sphere).
Staple Goods & Services (our second largest sector exposure at 16%), saw a series of transactions. Over a few days around the turn of the month, we sold all of our Monster Beverage, which had been a good investment for us, but after a solid increase over the year was looking ‘fully’ valued. Around the same time we participated in the initial public offering of shares in JDE Peet’s, principally suppliers of coffee in Europe but also includes the Peet’s coffee shop chain in America. Coffee also influenced a further addition to our holding in Nestlé, whose stock price had dipped in early June. We sold the smaller holding in Henkel after the rally, it had been a disappointing holding for us and though it is still a good company, it is difficult to see what will improve their rather dull performance. A lurch in the share price of Essity (a Swedish producer of personal care products) in early June gave us an opportunity to build a new position in this company.
Pharmaceuticals & Healthcare, our greatest sector exposure, currently at 18%, also saw a series of transactions and one new entrant. Lonza Group has been a star performer for us this year but, after a steep rise, the stock was in our top five so we reduced the holding by 20%. Around the same time we added to Johnson & Johnson, which had drifted during the ‘rotation to value’, adding further to this holding in early June. Roche Holding, the biggest single investment in the portfolio, had also drifted off in early June and we added there too. The new entrant to the portfolio is Gilead Sciences, we have held this company previously, having last sold out in August 2014 (at higher prices), their stock looks appealing again and it is not surprising to see AstraZeneca expressing interest in a ‘merger’.
In the Technology arena, we decided to take the profit from our holding in SAP, a good company but we felt that there were better opportunities to be found. We continued to build the relatively new position in Mastercard and added again to Ansys, and a new holding is Verisign, which provides domain name registry services and internet infrastructure.
Strong support for equities is coming from the Federal Reserve (and credit markets), which has continued to impress. Along with the other major central banks, they are providing massive liquidity and continuing to surprise with the extent of ‘doing whatever is required’ to avoid a slump into financial crisis. While the positive response of stock markets has caused some consternation, the valuation support provided by a halving in the ‘risk free’ rate (the US ten-year bond yield) provides a decent rationale.