MONTHLY FUND UPDATE OCT 2020 - PUBLICATION BY - University of St. Andrews ...

PUBLICATION BY                  PREPARED BY
ST ANDREWS INVESTMENT SOCIETY   JASMIN ESERMANN

MONTHLY
FUND
UPDATE
OCT 2020

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                                                ST ANDREWS INVESTMENT SOCIETY

  GENERAL PORTFOLIO                             1M: -3.04%    ▼
                                                              3M: -3.21%          ▼
  OVERVIEW                                            12M: +0.20%         ▲
Renewed market volatility in the month of       restrictions were further reinstated across
October led to a 3.04% drop in portfolio        Europe to curb the accelerating second
performance, compared to a 2.77% decline        wave of coronavirus cases.
of the S&P500 index.                            Selling intensified towards the end of the
The hardest hit sector of the portfolio was     month, with global equities suffering the
Health Care & Pharmaceuticals, posting a        worst trading week since March. Factors
1.60% loss, whereas the Technology,             such as mounting virus concerns and the
Media & Telecommunications sector was           outcome of the US presidential elections
among the more resilient with a gain of         caused the broader market to end in
0.10%.                                          negative territory.
Following a tough September, the market          The fear-gauge CBOE Volatility Index
was off to a good start with optimism of        (VIX) climbed close to 40 in the week
additional fiscal stimulus, driving the         before the US election, doubling its long-run
market higher and the S&P500 hitting a          average.
high for the month on 12 October, gaining       Mega-cap tech firms provided a weaker-
5%.                                             than-expected outlook, causing Apple
However, equities fell by 2.4% for a            shares to drop 6% as iPhone revenue
second consecutive month, with faded            missing analysts’ estimates, while Twitter
investor optimism and a blurred path of         closed down more than 20.6%, following
economic recovery ahead, as                     disappointing new-user numbers.
widespread
                       52-Week Portfolio Performance Relative to
                                      S&P500 Benchmark

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                      ST ANDREWS INVESTMENT SOCIETY

            OUTLOOK
            As the prospect of a rosy “V-shaped” recovery
            appears less certain, analysts estimate weak
            growth in the coming months ahead.
            The global economy is predicted to shrink 4.4%
            this year, with global debt expected to reach a
            record $277 trillion by year’s end (as reported
            by the Institute of International Finance), as
            local economies continue to rely on government
            coronavirus relief.
            Promising results on successful Phase 3 trials by
            drugmakers Pfizer and Moderna have
            heightened optimism that an effective vaccine
            will be available in the coming months, however
            it will be 2022 before we have ‘semblances of
            normality’, warns Fauci.
            Deal or no-deal? Post-Brexit discussions are
            underway to reach a trade agreement following
            the end of the transition period on Jan 1, 2020,
            with raised optimism that a deal will be struck,
            yet ‘significant differences’ between the two
            sides remain and failure to bridge the gaps may
            cause talks to collapse.
            China’s GDP expands beyond pre-pandemic
            levels, with industrial output higher than
            expected, up 6.9% YOY, standing out in a
            shrinking global trade. The country is the only
            major economy with predicted positive GDP
            growth this year.

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                      ST ANDREWS INVESTMENT SOCIETY

      Sector Exposure - October 2020

    Best and Worst Performing Stocks

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                                         ST ANDREWS INVESTMENT SOCIETY

   SECTOR SPOTLIGHT
   Healthcare & Pharmaceuticals
   Becton Dickinson and Co. (NYSE: BDX)

   With the largest sector allocation holding of 35%, the sharp losses of Health
   Care & Pharmaceuticals equities in the portfolio (-1.48%) helped drag the
   portfolio performance lower throughout October.
   Becton Dickinson & Co. (NYSE: BDX), an American medical technology
   company, is currently trading around $230 and fell 1.48% last month, still
   -13.27% lower YTD.
   While BD has underperformed the market this year, the company is
   currently profiting from strong Covid-19 diagnostic testing sales, as
   indicated by the 11.60% earnings surprise of the latest quarter, with EPS of
   $2.79 compared to the estimated $2.50 per share.
   Additionally, Canada is purchasing 7.6 mil rapid Covid-19 tests from the
   company, with early shipments likely to begin in late November. Further,
   the Dutch ministry of Health purchased 9.2 million antigen tests from
   Becton Dickinson early this month.
   Additional growth opportunities include the C.R. Bard acquisition at the end
   of 2017, which has resulted in a significant share count increase, as well as
   the recently announced purchase of Medical Business Assets of CUBEX,
   which will expand the company’s medication management offerings.

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                                         ST ANDREWS INVESTMENT SOCIETY

   SECTOR SPOTLIGHT
   Financial & Professional Services
   Evercore Inc. (NYSE: EVR)

   Stocks of the Financial & Professional Services sector were impacted by
   the strong sell-off in the final days of October, with returns down 0.86%
   over the past month, following a 0.91% increase by mid-October.
   Evercore Inc. (NYSE: EVR), a global independent investment banking
   advisory firm founded in 1995, has seen its stock rise 11% over the last 12
   months, currently trading higher than pre-Covid-19 levels.
   The investment bank’s Q3 EPS of $1.11 beat analysts’ estimates of $0.37
   per share, creating an earnings surprise of 200% and continuing the
   impressive record of positive earnings over the last four quarters.
   Revenues remained stable at $408.5 million in the last quarter, as higher
   underwriting revenues (195% increase versus previous year) were offset
   by decreases in advisory fees, commissions and related fees.
   The S&P Global Ratings agency has placed a “negative” outlook for a
   third of global banks for 2021, with slow recovery due to potential further
   economic disruption by reinstated lockdown measures, fewer support
   measures once fiscal support subsides and the impact of a weakening
   property market. Yet improvements in credit conditions, a steepened yield
   curve as well as a successful vaccine will prove favourable for financial
   stocks.

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                                             ST ANDREWS INVESTMENT SOCIETY

   SECTOR SPOTLIGHT
   Industrials & Natural Resources
   Cheniere Energy, Inc. (NYSEAmerican: LNG)
   The Industrials & Natural Resources sector, comprising 11.68% of the portfolio,
   remained relatively stable throughout the month of October (-0.01%).
   US industrial output accelerated more than expected last month, rising 1.1%, yet
   remains well below pre-pandemic levels.
   Cheniere Energy (NYSEAmerican: LNG), the Houston-based leading producer
   and exporter of liquefied natural gas, reported steep Q3 losses amounting to
   $463 million, while revenues were down 32.7% from $2.17 billion reported in the
   previous year.
   The stock rose 9.81% in mid-October, trading at $50.89, before it dropped sharply
   towards the end of the month to $47.87 – securing a monthly 3.30% gain
   Stable operations and increased production rates provide robust financial
   guidance for Cheniere Energy in 2021. The company plans to complete the third
   train at its liquefied natural gas export plant in South Texas in the first quarter of
   2021, “ahead of schedule” and within budget.
   In addition, China’s first term deal to purchase liquefied natural gas from
   Cheniere Energy since the disrupted trade war, indicates confidence of
   improved relations between the world’s two most powerful economies.
   Natural gas has an increasingly important role to play in the global transition to a
   lower carbon future as a cleaner energy source, hence rising global LNG
   demand and long-term contracts places the stock in a favourable position for
   steady future growth.

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                                              ST ANDREWS INVESTMENT SOCIETY

   SECTOR SPOTLIGHT
   Consumer Goods & Services
   Unilever PLC (LSE:ULVR)
   Retail sales in the US last month climbed at the slowest pace in six months, up 0.3%
   compared to an expected 0.5%. Negative returns of 0.36% of the Consumer Goods
   & Services sector within the portfolio suggest hesitant consumer spending amidst
   rising virus concerns and declining household income.
   Anglo-Dutch packaged consumer goods giant, Unilever (LSE: ULVR), which has a
   market cap of £118Bn, has a diversified product portfolio reaching 2.5Bn customers
   across the globe, including heavy exposure to emerging economies. Shares have
   risen 8% since the beginning of the year.
   The group, which owns Marmite, Dove and Wall’s, reported a 4.4% increase of
   year-on-year organic growth to £11.6 billion, beating consensus estimates of 1.3%,
   despite currency headwinds. However, CEO Alan Jope warned that outlook
   remains uncertain and was “perplexed by talk of a quick recovery”. Investor’s
   worries were reflected in the 4% drop of Unilever shares since the beginning of the
   week (24 October).
   The surge in sales of the FTSE100 giant was largely driven by emerging markets,
   comprising around 60% of the company’s revenue, while e-commerce sales surged
   76% during the quarter·.
   Unilever announced this week it is expanding sales of its vegan and dairy-free
   products, targeting a five-fold increase to €1bn by 2027, as it seeks to profit by the
   growing consumer trend towards reducing meat and dairy intake. The drive for
   plant-based alternatives will be led by the Dutch-based The Vegetarian Butcher
   brand, acquired in 2018, which is said to be growing “explosively”.

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                                             ST ANDREWS INVESTMENT SOCIETY

   SECTOR SPOTLIGHT
   Technology, Media & Telecommunications
   Alibaba Group Holding Ltd.(NYSE: BABA)
   The Technology, Media & Telecommunications sector, comprising 20% of the
   portfolio, posted the highest sector return in October as well as a three-month
   increase of 2.80%.
   Jack Ma’s e-commerce giant Alibaba (NYSE: BABA), currently trading at $255.69,
   operates through four business segments: core commerce, cloud computing, digital
   media & entertainment, and innovation initiatives and others. Alibaba currently
   controls 56% of China’s e-commerce market as well as 40.1% of China’s cloud
   infrastructure market.
   Revenues in the third quarter rose 30% to $22.8 billion, yet fell short of analyst
   expectations. Similar to other tech firms, Alibaba is profiting from the e-commerce
   momentum triggered by the pandemic, as well as the booming cloud computing
   business, which saw revenues surge 60% YOY growth in the last quarter
   A notable headwind is the suspended IPO of the financial technology firm Ant
   Group, co-founded by Jack Ma, which was on track to raise over $34 billion in the
   world’s largest-ever share sale. The interrupted public offering by the Shanghai
   Stock Exchange as a result of new regulations, will cause Ant Group to function
   more as a bank, rather than a technology company, which will tremendously.
   downsize the predicted valuation and affect the financial performance of Alibaba·
   Whilst Alibaba continues to pursue a unique growth strategy, such as the three-
   year experiment Xunxi (“Fast Rhino”) Digital Factory to modernize China’s
   manufacturing sector, as well as the joint $1.1Bn investment with Swiss luxury group
   Richemont in the UK-based online retailer Farfetch, tailwinds such as ominous
   government regulations for anticompetition may be impactful on the Alibaba stock.

Contact the FMT for more information:
Email: fmt@sta-investsoc.com
Website: www.sta-investsoc.com

Victor Gong               Robbie Turnbull
Head of Fund              President of Investment Society
FPS Sector Coverage       EMK Sector Coverage

Jasmin Esermann            Jackson Stafford
Head of Investor Relations Head of Operations
CGS Sector Coverage        HCP Sector Coverage

Nathalie Nourry
Head of ESG
TMT Sector Coverage

Daniel Khajenouri
Head of ESG
INR Sector Coverage