Global equities

Global equities – February 2022 results

18 Mar 2022 | 3 minutes read
Ted Alexander
Portfolio Manager
& Head of Investments

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Global stock markets fell in February in response to conflict in Ukraine. Although tension in the region has been high, stock markets had not priced in a conflict of this magnitude. We certainly didn’t predict it, but our Orca Global Fund and Orca Asian Fund are positioned to defend capital gains in volatile markets and have outperformed markets over the last quarter and year.

We fear that this conflict is likely to drag on for a long time, and that the most likely outcome is widespread suffering and a long-term decline in the Russian and Eastern European economies, which could impact Western Europe. Russia and Ukraine are a relatively low proportion of global trade, at less than 5% of global stock market revenues, as measured using the MSCI World Index. However, certain companies and industries will be hard hit. Ukraine has a big role in the supply chain for cars, wheat, and raw materials. Russia is a major exporter of oil and natural gas, metals and chemicals. The biggest outcome is confusion, uncertainty, and fear. It’s hard to quantify the impact of the conflict on most global stocks, which makes investors more cautious and is driving the fall in stock markets. German stocks were down 10.5% in the 10 days following the launch of the 24 February offensive, and the euro was down another 4% against the US dollar (both have since partially recovered). In contrast, US stocks are effectively flat since the offensive. With time, companies will calculate, disclose, and reconsider their Russian and Eastern European exposure, which could help boost stock prices again.

The Orca Global Fund has a 21% exposure to Europe, by company revenues. This compares to 40% for the US. The remainder is broadly diversified globally. On the one hand, the Orca Global Fund is more defensive and therefore aims to outperform broadly falling markets, on the other, the European exposure is high, which could cause underperformance as the conflict continues. The exposure is much lower for the Orca Asia Fund and Orca Global Disruption Fund.

The Orca Global Fund outperformed its benchmark, the MSCI World Index, for the month, and has outperformed falling markets by 5.1%1 over the last three months. Over the last 12 months, the Orca Global Fund is 4.3%1 ahead of the benchmark. This shows the benefit of risk aware investing in unpredictable markets.

Asian markets have also been volatile, falling 6.1% over the past three months, and 8.9% over the last year. Our Orca Asia Fund has outperformed its benchmark, the MSCI Asia ex-Japan Index, by 2.7%1 over the past three months and 6.0%1 over the year.

The Orca Disruption Fund is for investors with higher risk appetite and has underperformed the benchmark by 5.1%1 for the month, 16.6%1 over the past three months, and 22.1%1 for the year. The main cause of the recent underperformance is that disruptive stocks were strongly bought through the COVID crisis, and this premium has eroded as economies normalise and interest rates rise. Since inception, the Disruption Fund has returned +16.6% since inception compared with the broader market +12.8%. While the market could remain volatile in the short-term, we remain confident of strong returns over the longer term. Valuations have become more attractive, fundamentals remain generally strong (as demonstrated by the recent reporting season) and underlying disruptive trends (e.g. accelerating demand for cloud computing, digital transformation, artificial intelligence, electric vehicles, etc.) are supportive of growth over the long term.

Global stock markets are down 10% so far in 2022, driven by rising interest rates and war. We remain of the opinion that global stocks offer attractive long-term returns, accounting for risk. We also feel that investors made strong returns in recent years and will be well suited by ensuring their money is invested with an eye to capital preservation. This is precisely how the Orca Global Fund is positioned – taking advantage of bull markets to offer strong return to investors, but looking to preserve capital in downturns. We have delivered this as we approach our fourth year since launch.

 Note: 1.Fund performance is quoted net of fees and inclusive of reinvested distributions. Past performance is not a reliable indicator of future performance

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