MWG Global Equity Growth Fund Performance
The MWG Global Equity Growth Fund Series O rose 4.3% in September, slightly behind the 4.8% rise in its benchmark, and is now up 19.9% year to date. The Fund’s top three performers in the month were Hudbay Minerals (+29%), Major Drilling (+20%) and Alphabet (+16%), while Docebo (-11%), lululemon (-10%) and Air Canada (-10%) were the largest detractors.
Portfolio Managers’ Summary
Markets continued their upward climb, led by the AI trade (which extends beyond semiconductors and cloud providers to companies that build and power data centres) as well as strength in the mining sector, particularly gold and copper.
In September, the United States Federal Reserve resumed its interest rate cutting cycle with a 25-basis point reduction in rates and indications that additional cuts are on the horizon. We believe that an expansionary fiscal policy will provide global stimulus and be supportive of higher equity markets.
During the month, we started a position in Amadeus IT Group. Amadeus, a Spanish multinational technology company, provides booking and scheduling software and systems for about half of the global passenger aviation market, connecting travel agents (including online systems like Expedia) to airlines, as well as airport systems like baggage and ticketing. We like Amadeus as it has a large technological lead over its two nearest competitors, both of whom are struggling with very high debt loads and the modernizing of their technology. The company generates revenue on a fee per passenger basis and, as such, is an excellent play on the growing market for global travel. In 2009, at the depth of the financial crisis, its earnings were flat, indicating its resiliency in a tough economy. For a leading software company with potential drivers that could grow earnings by 15% per annum, it trades at only a 20x P/E multiple. In addition, it has a strong balance sheet and is buying back shares.
To fund the purchase of Amadeus, we fully exited our position in TD Bank. As outlined by Bruce in our note in early October, we believe the Canadian banks are due for a breather after a large run on expanding P/E multiples.
MWG Income Growth Fund Performance
The MWG Income Growth Fund Series O increased 4.3% in September, below the 5.3% return for its benchmark. The Fund is up 17.1% year-to-date. Kingfisher (+21%), Capital Power (+15%) and Pembina Pipeline (+10%) were the top performers, while Doman Building Material (-5%), BP (-1%) and Pro REIT (flat) were the top detractors. The Fund’s yield was 5.5% at month-end.
Portfolio Managers’ Summary
As interest rates come down, investors will continue to search for high yielding assets. We believe that stable, infrastructure-style investments will provide long-term protection against inflation should expansionary fiscal policies lead to further currency devaluation. Moreover, in instances such as real estate, energy infrastructure and rural aerospace assets, they can be acquired for below replacement value.
We see particular value in the real estate sector, As interest rates decline, financing conditions should improve and provide support to asset values. There are several subsectors with low supply, including healthcare centers, small bay industrial assets and communities. We have exposure to all of these subsectors in our Fund.
In September, we added Opera Ltd to our holdings. The independent web browser company brings a massive 300 million-user base and strong free cash flow. We anticipate that these entrenched user assets will become increasingly valuable as a necessary foundation for future consumer AI services.
