While equity markets pedaled sideways over the September quarter, volatility has returned, causing a pullback and a lot of pain for global fund managers.
Nick Griffin, founder and CIO at Munro Partners, has responded, with the firm’s Munro Global Growth fund returning 3.3 per cent over the period, while the MSCI World ex-Australia index was up 3.99 per cent. The fund is, however, benchmark-unaware.
While much of the COVID Delta wave and China-related headwinds were avoided throughout the quarter, the team is noticing supply chain bottlenecks as the economy reopens. According to the quarterly update, “Chinese demand is weakening on the back of regulatory and property sector risks, and inflationary pressures are staying stubbornly high due to raw materials and transport prices. The combination of these issues is likely to pressure the near-term corporate earnings outlook.”
Positive contributors came from the Innovative Health, Digital Enterprise and High-Performance Computing “areas of interest,” while the negative contributions came from Digital Payments, as the market worries about cross-border travel taking longer than expected.
Munro is, however, positive on equity markets for the medium term. It says, “Earnings growth is likely to continue, while the structural trends driving many of our investments continue to build momentum. Near-term, however, there are some hurdles that need to be overcome. Input cost inflation has continued and looks likely to negatively impact corporate profit margins. Elsewhere, emerging markets continue to struggle with Covid-19 creating added supply chain bottlenecks.”
To add to the above concerns, the Federal Reserve Board is entering a period of uncertainty as some members have recently left. The Democrat Administration could potentially reshape the Fed in line with its progressive agenda.
In summary, the team at Munro is aware of the changing macro conditions but is confident that the portfolio’s positioning is in the highest-growth stocks. Munro says, “We see our core holdings as being well-placed to deal with a decelerating economic growth backdrop and potentially tighter financial conditions from the Fed. While valuations at the more speculative end of the market remain high and are consequently vulnerable to higher rates, we see larger-cap structural growth stocks at reasonable levels.”
In a positive move for investors, Griffin announced the introduction of a new floor to the hurdle rate for the Munro Global Growth Fund, of 6% a year. It’s good news for investors, as it installs a minimum return of 6 per cent before a performance fee can be charged; this is effective from 1 July 2021.