Global equities

Global equities – August 2021 results

20 Sep 2021 | 2 minutes read
Ted Alexander
Portfolio Manager
& Head of Investments

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August was another profitable month for global investors, with the MSCI World Index rising 3.0%. August was dominated by companies reporting profits for the previous three and six-month periods, and strong results drove stock markets up to new highs. This continues the bull market trend of 2021; steady stock market appreciation with falling volatility. Investors who were willing to accept the uncertainty around economies reopening have been handsomely rewarded, and we’ve positioned the Orca Global Fund to benefit. Over the last six months, investors in the Orca Global Fund received a return of 24.8%¹, more than 2% ahead of the Index.

Over the past quarter the two strongest areas of investment have been technology and healthcare, our two favourite themes. A resurgence in the Delta variant means more online economics, bumping up technology related stocks. This has led to the Orca Global Disruption Fund rising 18.5%¹ over the past three months and 5.8%¹ in August – a fantastic outcome. Healthcare has benefitted from lower political risk, relating to the Biden administration, and improved patient dynamics. The Orca Global Fund has a high exposure to healthcare stocks and rose 13.7%¹ over the past three months and 2.1%¹ in August.

In contrast, Asian markets were hit by a pivot by the Chinese government from rampant capitalism to more regulation and wealth redistribution. The Chinese stock market has fallen 5% over the last three months as a result. The reforms announced are generally no more aggressive than we see in Australia, with regulations around data, privacy, tax and wealth. However, the Chinese government dented investor confidence by effectively banning private companies from the education tutoring sector – a move radically different than we would see elsewhere. This destroyed an industry, leading to fear of what may come next. Despite Chinese stocks falling, our Orca Asia Fund has returned a positive 2.9%¹ over the last three months, compared to the Index at 0.0%. The Fund is underweight these Chinese themes, so investors in the Fund need not be too concerned about being over-exposed to Chinese reform.

Investors may recall that the Orca Global Fund and Orca Asia Fund were converted from previous strategies they invested in. As part of the conversion, previous holdings were liquidated in 2018 and the proceeds in our two portfolios invested into listed stocks. However, a small rump of private equity holdings from the previous strategy remained in the portfolio, less than 10% of the value. These investments are predominantly in the parent company of Ola, an Indian rival of Uber. We can’t exit these positions until the company has an IPO, or other liquidity event. These private equity holdings have, since the Funds were converted, underperformed global markets and the listed stocks held by the Funds and detracted from relative returns. In this report you’ll see that the Orca Global Fund has underperformed in August, with a return of 2.1%¹ versus 3.0% for the Index. However, we estimate that the liquid portion of the Fund (listed stocks and cash) returned 3.5%¹ excluding these private equity holdings. The good news is Ola’s core business has recovered rapidly since the second lockdown in India and through August there were widely reported stories that Ola is planning an IPO over the coming year. At US$1-1.5 billion, and a valuation that could exceed US$8 billion we are hopeful that will help close the performance gap between our investment returns and the Funds’ reported performance. We will update investors as we find out more.

Stock market conditions have been very strong in 2021, and investors are making good returns. We think this bull market can continue and investors can still benefit from exposure to global stocks. At the same time, the more this market runs up, the more investors should ensure they have defence against a pullback. Our Orca Global Fund is defensively positioned, and we aim to preserve investor capital in market downturns.

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