Saxo Morningstar Moat EUR Q1 2022 commentary

SaxoSelect Commentaries
Instruments tradedStocks
Asset classesGlobal equities (excluding emerging markets)
Investment styleHigh-quality stocks that are priced at a discount to fair value
Dividend yield1.88%
Quarterly return2.51% (net of fees)
Annualised volatility (since inception) 23%

Market overview 

At a Glance

  • Equities and bonds, which often move in opposite directions, both finished in the red—an occurrence not seen since the first quarter of 2018.
  • Commodity prices surged, with oil finishing up 33 percent. Energy-related assets also performed well.
  • Stocks with high exposure to energy companies managed better, while emerging markets had a difficult quarter.
  • Bonds had their worst quarter in 20 years, especially for longer-dated bonds, amid high inflation and rising interest rates.

Important Perspective

From the opening days of 2022, investors were taken on a wild ride during a first quarter that featured wide swings in stock, bond and commodity markets around the world. Stocks took a dive as the markets reassessed the potential of the Federal Reserve setting out a more aggressive path for interest rate hikes to help curb inflation, which hit a 40-year high. In a knock-on effect of rising yields, some of the stock market’s strongest performers in recent years saw share prices fall sharply.

Rising inflation and the invasion of Ukraine were the primary drivers of the pullbacks. For consumers, inflation is increasing faster than wages and is putting pressure on spending plans. Many businesses are facing higher costs for materials, and the war in Ukraine put additional pressure on supply chains that had only just started to untangle in the wake of the COVID crisis. Higher energy prices ranked among the most visible threats. The price for oil rose above $100 per barrel of West Texas Intermediate crude—up around 70 percent from a year ago. The Consumer Price Index (CPI), a key measure of inflation, jumped in the developed markets, with US CPI hitting 7.9 percent in the 12-month period ending February 2022. In response, central banks announced the first of what they anticipate will be several interest rate hikes to come this year.

Stocks fell heavily, but made a late recovery, marking the first quarterly loss since the COVID pandemic shook up markets in early 2020. Value-oriented stocks posted their best quarter of relative performance compared to their growth equivalents since the depths of the dot-com bubble in 2002.

Communications services, consumer discretionary and technology were the worst-performing sectors, while energy surged. Weak stock markets in Germany and Italy held back Europe, while commodity producers helped markets in Australia and the United Kingdom post gains. 

Emerging markets had a difficult quarter. Russian stocks, which were 3.5 percent of the index to start the year, became untradeable after the invasion of Ukraine. Chinese stocks sold off for a combination of reasons, including worries about a COVID spike, an economic slowdown and a broader reassessment of geopolitical risk. Emerging market debt also fell for similar reasons.

Portfolio performance (net of fees)

Inception (July 2016)114.20%

Top 10 portfolio holdings (as of 31/03/2022)

NameWeight (%)
Dassault Aviation SA4,55
AGL Energy Ltd4,51
Leonardo SpA Az nom Post raggruppamento4,42
Bayer AG4,21
Schlumberger Ltd4,20
Incyte Corp4,20
Banco Santander SA4,14
Lloyds Banking Group PLC3,97
Equitrans Midstream Corp3,85
Ionis Pharmaceuticals Inc3,70

Top performers

Dassault Aviation
Dassault Aviation, a subsidiary of French multinational company Dassault Group, designs, builds and maintains military fighter jets, and is one of the largest manufacturers of business jets. Dassault has a 24.8 percent stake in narrow-moat Thales, which contributes significantly to Dassault’s net profit. In 2021, Dassault Aviation generated EUR 7.2 billion in revenue with 12,000 employees. About 70 percent of revenue comes from defence aircraft equipment sales and services, while Falcon business jets generate the remaining 30 percent of sales.

Leonardo SpA Az nom Post raggruppamento
Leonardo is one of the largest European defence firms, with 30 percent of its shares owned by the Italian government. The group’s divisions include helicopters, defence, electronics, security systems and aeronautics. The helicopter division serves both military and civil markets through AgustaWestland. DES has access to the US defence market through the DRS subsidiary. The aeronautics division cooperates in international programs such as Eurofighter Typhoon, F-35 and the new Tempest, and supplies aerostructures to large commercial aircraft programs.

Schlumberger Ltd
Schlumberger is the world’s largest supplier of products and services to the oil and gas industry. It is investing more than any other services firm to make its offerings more bundled, which it believes is likely to be one of the key industry trends during the next 10 years. Efforts on this front are most visible via the Schlumberger Production Management business, which now accounts for 10 percent of its revenue.

The fair value estimates for large, diversified oil field service companies have been adjusted. This accounts for positive recent financial results and improvement in the near-term outlook for industry spending in the light of high oil prices. One negative factor is the potential disruption to Russia operations, which affects Schlumberger the most. The cohort has continued to deliver strong financial performance in recent quarters, with higher industry activity leading to revenue increases and margin gains via operating leverage. Management teams are hopeful for pricing improvement in the next few years. The surge in near-term oil prices is likely to lead to a more front-loaded recovery in industry spending than anticipated earlier. A small negative impact from disruption of Russia operations has been incorporated to the companies' fair values. 

Sabre Corp
Sabre holds the number two share of global distribution system air bookings. The travel solutions segment represented 89 percent of total 2021 revenue, split between distribution (two thirds of segment sales) and airline IT solutions (one third). Transaction fees, which are mostly tied to volume and not price, account for the bulk of sales and profits. Despite the pandemic, inflation and geopolitical concerns, Sabre’s—and overall industry—travel demand continues to expand, and Sabre noted at the end of March that net air bookings had reached 50 percent of 2019 levels. Leisure bookings have remained strong, but higher-profit international and corporate bookings have accelerated since January, after being temporarily impacted by the Omicron variant. As a result, Sabre expects its first-quarter net air bookings to reach 41 percent of 2019 levels. There is an expectation that travel demand will broaden out to cross-border and corporate trips in 2022. 

Sabre’s long-term technology transformation plan first outlined in February 2020 (which stands to reduce costs while improving reliability and speed innovation) remains on track, despite severe demand headwinds created by the pandemic in the past two years. 

AGL Energy Ltd
AGL Energy is one of Australia's largest retailers of electricity and gas. It services 3.7 million retail electricity and gas accounts in the eastern and southern Australian states—about one third of the market. Profit is dominated by energy generation, underpinned by its low-cost coal-fired generation fleet. Founded in 1837, it is the oldest company on the Australian Securities Exchange. AGL Energy directors knocked back a slightly improved takeover offer from the Brookfield consortium of AUD 8.25 per share (up from AUD 7.50 per share initial proposal). Brookfield consortium walked away after the latest rejection.

The world was already scrambling for energy before the tragic events in Ukraine and the sanctions on Russia. Now global prices for coal and gas have risen to extreme levels, which puts upwards pressure on Australian electricity prices. A year ago, the market got carried away with fears that new renewable energy supply was depressing electricity prices and that this would continue indefinitely because of ambitious government plans to decarbonise. Gas prices remain an important driver of electricity prices, and rising gas prices are likely to support electricity prices.

Worst performers

Credit Suisse Group AG ADR 
Credit Suisse runs a global wealth management business, a global investment bank and is one of the two dominant Swiss retail and commercial banks. Geographically its business is tilted toward Europe and the Asia-Pacific region.

Worldline SA 
Worldline is a payment service provider offering merchant acquiring, payment processing and payment infrastructure solutions to merchants and banks. With the acquisition of Ingenico, the group also added a large, global point-of-sale (or in-store) terminal business to its portfolio.

Palantir Technologies Inc Ordinary Shares - Class A 
Palantir Technologies provides organisations with solutions to manage large disparate data sets in an attempt to gain insight and drive operational outcomes. Founded in 2003, Palantir released its Gotham software platform in 2008, which focuses on the government intelligence and defence sectors. Palantir expanded into various commercial markets with its Foundry software platform in 2016 with the intent of becoming the data operating system for companies and industries. 

Palantir is well suited to help organisations consolidate and harness the power of data, and it holds a leading position in the government sector with the US and its allies along with a growing presence with commercial data applications. Palantir established itself by working with the US government intelligence and defence sectors to integrate data into a consolidated dashboard; it then drove outcomes by uncovering patterns with artificial intelligence support. A robust growth trajectory comes from new commercial ventures on top of a strongly expanding government base. Installation efficiencies and the strategic shift toward a software-as-a-service model will be conducive to margin expansion throughout the 2020s.

RingCentral Inc Class A 
RingCentral is a unified communications as a service solution. RingCentral’s unified communications platform replaces on-premises private branch exchange (PBX) phone systems, which support voice-only desktop phones, with its cloud phone system. The software allows businesses to communicate and collaborate all on one platform across various device types. 

As an increasingly mobile workforce requires greater flexibility in business communications, the firm’s offerings become more critical. In a go-to-market model that focuses on leveraging channel partners such as Avaya and Mitel, RingCentral has gained first access to an on-premises PBX install base of over 210 million of these seats. It is likely that these partnerships allow RingCentral a powerful advantage over competitors in winning a significant portion of the legacy install base. The long-term growth projections are supported by increased seat penetration, expansion of enterprise adoption and development of its international presence.

Just Eat NV 
Just Eat Takeaway operates an online marketplace that connects restaurants with users in Europe and North America. The company operates mainly as an order-only marketplace, although it also offers last-mile delivery services. The company is the result of the merger of Just Eat Plc and NV in early 2020. The company had close to 60 million active users on its platform generating revenue of about EUR 2 billion and a gross merchandise value of EUR 13 billion. Excluding the US after its recent acquisition of Grubhub, the company’s largest geographical presence by revenue is in the UK, Germany, Canada and the Netherlands.


For all the attention on stocks, bond performance is perhaps the bigger story. The asset class saw its worst quarter in over 20 years. As stubbornly high inflation had central banks embarking on a path of more aggressive rate increases than was expected at the start of the year, bond investors are facing some of their worst losses in years. Hardest hit were longer-term bonds, which have the greatest sensitivity to interest-rate changes.

However, as we look ahead, it is important to remember that the future holds a wide range of possible outcomes and it continually defeats those who seek to make confident forecasts. In every situation, the right approach is to view the future probabilistically and think long term. Accepting some volatility is a pre-requisite for good returns in any market, but today’s market arguably requires greater care than usual. It is a pre-requisite to target the best assets for wealth creation and preservation, with careful sizing and smart diversification.


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