Nasdaq DW global momentum – Q3 2019 commentary

Market overview

On the whole, global stock markets outside of the US detracted in Q3 2019, having performed well earlier in the year. The MSCI EAFE Total Return Index dropped 0.7%, whilst emerging markets — as per the MSCI Emerging Markets Total Return Index — dropped 4.1%.

The Summer period was permeated by market-moving events. The US-China trade war dragged on, making investors fearful of a global recession. Regrettably, the outcomes of such events are hard to plan for. Nasdaq DW, though, predicts everything will eventually flow down through price, and the portfolio can act accordingly when this happens. China fell in Nasdaq DW’s country ranking models, and so the portfolio remains underweight to China relative to the broad benchmarks.

At the beginning of September, we witnessed a major short-term rally by “momentum laggards” (stocks which have not exhibited a strong positive price trend). They dramatically outperformed the “momentum leaders”, or stocks which did exhibit a strong positive price trend. Since the portfolio focusses on momentum leaders, this circumstance typically leads to underperformance.

Following an initial decline during the period, stocks began to recover towards the second half of Q3, and year to date returns remain healthy.

Portfolio performance

(Net of all costs)

You can find the long-term track record here.

Best performing positions

• Galapagos NV, a clinical-stage biotechnology company, discovers, develops, and commercialises various small-molecule medicines. The position is kept into Q4.
  
  
• Fly Leasing Limited, through its subsidiaries, purchases and leases commercial aircraft under multi-year contracts to various airlines worldwide. The position is kept into Q4.
  
  
• ASML Holding N.V. develops, produces, markets, sells, and services advanced semiconductor equipment systems consisting of lithography-related systems. It operates primarily in the Netherlands, the United States, and Asia. The position is kept into Q4.
  
  
• Cosan Limited, together with its subsidiaries, engages in fuel and natural gas distribution, logistics, lubricant, sugar, and ethanol businesses in Brazil and internationally. The position is kept into Q4.
  
  
• New Oriental Education & Technology Group Inc. provides private educational services under the New Oriental brand in the People's Republic of China.  The position is kept into Q4.
  
   

Worst performing positions

• Argenx SE, a clinical-stage biopharmaceutical company, focuses on developing antibody-based therapies for the treatment of autoimmune diseases and cancer. The position is kept into Q4.
  
  
• Companhia Siderúrgica Nacional operates as an integrated steel producer in Brazil and Latin America. The position is kept into Q4.
  
  
• Companhia Brasileira de Distribuição engages in the retail of food, clothing, home appliances, electronics and other products through its chain of hypermarkets, supermarkets, specialised stores and department stores in Brazil. This position will be sold into Q4.
  
  
• CNOOC Limited, an investment holding company, explores for, develops, produces, and sells crude oil and natural gas. The position is kept into Q4.
  
  
• Ericsson provides information and communications technology solutions for service providers. It operates through four segments: Networks, Digital Services, Managed Services and Emerging Business and Other.  The position is kept into Q4.

Outlook

Throughout Q4, uncertainty around the global economy will remain, which will likely lead to increased volatility. The portfolio remains committed to being resilient throughout short-term noise and focusing on intermediate trends. Regardless of the market environment, our relative-strength methodology remains relevant and allows the portfolio to adopt to changing markets and find new emerging leadership.