Trident Global Growth Fund – Quarterly Fund Manager’s Report – 30 June 2016

Quarterly Fund Report – 30 June 2016

Fund Commentary

The Trident Global Growth Fund unit price rose4.60% during the quarter,against a rise of 0.30% for the MSCI Benchmark.

Our decision to be a little more defensive in being overweight stocks such as Verizon, Johnson & Johnson and 3M has been a profitable one. While we do maintain large holdings of “growth” stocks such as Alphabet, Facebook and pharmaceutical stocks, we intend to maintain an overweight position in quality dividend paying large caps for the short to medium term. We also have maintained a significant position in cash until we see more evidence of economic conditions stabilising in Europe and the UK after the Brexit vote.

We are also concerned about the sluggish economy in the US, which we believe is due to the strong US dollar. The US dollar has been a drag on earnings over several quarters now and we expect this will be the case for some time while reserve banks such as the Bank of Japan, European Central Bank and Bank of England maintain their easing bias. In doing so they inflate the value of the US dollar and this in turn reduces the revenue and earnings for US companies that export into these markets.

During the quarter we maintained our overweight allocations in the Healthcare, Technology and Financials sectors.

Outlook

Since the Brexit vote the market has been optimistic on the global economy and more particularly the expected recovery in 2017 of US corporate earnings. We do not necessarily hold this view and are cautious that this optimism may be a little misplaced. While we do see a slight recovery in overall earnings, we are wary the market may have “overshot” the valuation mark having driven stocks on the S&P 500 up to over 18 times earnings in anticipation of strong earings growth in 2017.

The reasons for our caution is due the “unknown” fallout from the Brexit decision and what this may do to the UK and European economies in the medium term. If there is some negative fallout, it’s likely we’ll see more central bank easing and this will drive the US dollar higher. This alone would be enough to drive 2017 earnings estimates lower and give the overall market reason to reduce it’s level of optimism. We see any significant pullback as an opportunity to buy quality stocks that may not necessarily be harmed by a strong dollar.

Another reason for caution is the possibility of the Federal Reserve raising rates before year end, although we think this is only a slight possibility. We still see that the inflationary pressure remains low at this time and we doubt the Fed will move without having their 2% benchmark being met regardless of the job market strength. However, while the jobs market in the US has been strong, we note that the participation rate remains at the low end of the historical average and we expect this is also on the Fed’s radar screen.

We expect in the current and the fourth quarter to see some buying opportunities, but before that occurs we need to see investors adjust their 2017 expectations for US corporate earnings and we expect analyst’s projections will continue to fall thus lowering the willingness of investors to pay “silly” prices for stocks.

Our Ten Largest Positions

These are are our ten largest positions in the Fund.

Alphabet: Formerly known as Google, Alphabet is the western world’s most populat Internet search engine. The core business is Internet advertising but also has investments in other businesses as it expands it reach into “the internet of things”, electronic home control such as Nest, self driving cars and software, the Android operating system for mobile phones, Gmail, Chrome operating system, hardware products such as the Nexus phone and Chromebook, Google Maps, Google Earth and Google Wallet payment system. The company is very innovative and may soon be on the cusp of monetising some of it’s “projects” to diversify the earnings base. Holds over $65 billion in net cash. Forward P/E is 18 and expected long term growth is 17%pa.

Amgen: One of the world’s leading biotechnology companies. They operate in over 10 countries and focus on therapies for cancer, heart disease, inflammation and brain disorders. They are also a global leader in human genetics.Forward P/E is 13 and expected long term growth is 9%pa.

MasterCard: MasterCard is the world’s second largest credit and debit card processor. MasterCard Incorporated provides payment solutions and services under the MasterCard, Maestro, and Cirrus brands. Like competitor Visa, it operates globally and will be a beneficiary of increased e-commerce payments as well as less cash usage. In addition, MasterCard will also benefit by the introduction of payment systems such as Apple’s Apple Pay and Google’s Wallet who both use MasterCard as a payment processor. Forward P/E is 22 and expected long term growth is 16%pa.

Visa:The world’s largest credit card and debit card transaction processing company. Their network covers over 200 countries, 14,300 financial institutions, 2.1 million ATMs and 2.3 billion customers. In 2014 it processed over 100 billion transactions worth over US$7.5 Trillion. Visa is in a good position to take advantage of increased e-commerce payments, as well as less cash usage. In addition, Visa will also benefit by the introduction of payment systems such as Apple’s Apple Pay and Google’s Wallet, who both use Visa as a payment processor. Forward P/E is 23 and expected long term growth is 16%pa

Facebook: A phenomenon since it began in 2004 and now a part of most people’s lives with over 1B daily users. It’s hard to ignore it’s success and growth prospects. Since investing last quarter we have already seen a 10%+ rise. The company operates not only the Facebook social media site, but also Instagram, WhatsApp and Occulus Virtual Reality business. Forward P/E is 26 and expected long term growth is 35%pa

3M: We have all used 3M products from Post-it notes to Scotch Tape but what people don’t realise is that they produce products in Health Care, Automotive, Safety, Electronics, Consumer, Communications, Energy and several sectors. Forward P/E is 20 and expected long term growth is 9%pa.

Verizon: America’s largest telecommunications network. They pay a 4.2% dividend and are regarded as a defensive stock and are currently a bargain based on their forward PE of only 13 and expected long term growth is 5%pa

Johnson & Johnson: One of the world’s largest consumer product and healthcare companies. They have operations in 60 countries and employ almost 130,000 people. I’m sure everyone is familiar with their huge range of products. They pay a 3.2% dividend and are regarded as a defensive stock and are currently a bargain based on their forward PE of 17 and expected long term growth is 7%pa

United Health: The largest diversified healthcare provider in the US and in other countries. Their core businesses are Health Insurance and healthcare services across a wide range. They have 200,000 employees and have approximately 70 million clients. their forward PE of 15 and expected long term growth is 15%pa

Our equity holdings are chosen for their ability to not only provide “Growth at a Reasonable Price” (GARP), but also their low risk profile.

Conclusion

We remain focused on the Fund investing in businesses with strong and sustainable growth over the longer term as well as good cash flows.

The last 12 months have been difficult with a Flash Crash in August year and difficult trading conditions from September through to March this year, which has unfortunately eliminated much of our opportunity to rebuild the unit price. This quarter has been pleasing but there is much work to do in rebuilding our market beating position we enjoyed a year ago. We remain cautious having seen markets run up very quickly since the June Brexit vote and would like to see a more realistic market valuation before putting too much more money to work. However, there are still pockets of value out there and we continue to exploit investor sentiment where we see the opportunity.

Until next time…

Lance Spicer

Investment Manager

Sydney, 26th July 2016

AMH is the responsible entity and issuer of units in the Trident Global Growth Fund ARSN: 120 329 026. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 02 9241 7959 or visiting You should obtain and consider the PDS before deciding whether to acquire, continue to hold or dispose of units in the fund.

Lance Spicer is a director and shareholder of Trident Investment Management Pty Ltd, the Investment Manager of the Fund and an authorised representative of AMH (number 295393). Comments and opinions expressed are that of the Investment Manager.

The performance figures quoted are not audited. They are calculated to the end of the relevant quarter using the unit price after all fees and any taxes payable by the Fund have been deducted and assuming all distributions are reinvested. No allowance is made for taxes, which may be payable by individual investors.

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Australian Mutual Holdings Limited (AMH) ABN 90 115 182 137 Australian Financial Services License (AFSL) 295393. The Trident Global Growth Fund (Fund) ARSN 120 329 026. The Fund is issued by Australian Mutual Holdings Limited (AMH) ABN 90 115 182 137 Australian Financial Services License 295393. You need to read the Product Disclosure Statement (PDS) before investing in this product. The PDS can be accessed at