Fund Performance review
The fund returned 5.3% over the quarter, under-performing its benchmark index, the MSCI ACWI, which returned 5.7%.
At the sector level the fund had significant positive contributions from holdings in the information technology (IT) and industrials sectors. There were no significant detractors from a sector perspective.
Apple was the largest positive contributor to performance. Its shares rose to make Apple the world’s first trillion dollar company in August and recent results revealed extraordinary revenue growth for a company of that size. We have been long-term owners of Apple, sharing in the benefits from its consistent superior business performance. Much attention is paid to Apple’s product cycle and product launches but what attracts us is the stickiness of its user base, spreading from the iPhone itself to products like the iPad, MacBook, iTunes and the operating system. This stickiness creates a significant recurring revenue opportunity over the long term.
Microsoft also performed well. The company has three main segments: Productivity & Business Processes (which includes the Office platform), Intelligent Cloud (which incorporates Azure and other enterprise services), and More Personal Computing (which consists of Windows, gaming such as the XBOX, search advertising and devices). The company's monopolistic market position in Office and Windows make it well placed to provide these products on a software-as-a-service basis, which it is increasingly doing. Microsoft also has a very large opportunity in cloud services with spend on cloud currently a small portion of the huge Enterprise IT market. We think the share price valuation looks attractive as in our view it does not currently reflect its true earnings power, with Microsoft generating cash earnings well in excess of its reported earnings.
Another strong contributor was Irish clinical research organization (CRO), ICON. CROs help pharmaceutical and biotech clients launch new drugs by managing the clinical trial process. The complexity of running clinical trials has increased markedly in the last 20 years, with regulators requiring more data and longer treatment periods to prove the safety and efficacy of drugs. The resulting increase in costs has encouraged the outsourcing of more and more of this work to specialised CROs, but with the addressable market less than 50% penetrated currently, and with the top five firms only accounting for 40% of this, this is a long-term trend we see continuing for many years to come. Icon sets itself apart within its industry by having an exceptional track record of operational performance, an innovative approach to adopting new technologies, and a balance sheet that provides significant financial flexibility.
The fund’s position in South African Consumer Staples companies Shoprite, a supermarket retailer, and Tiger Brands, a packaged foods company, were among the detractors over the quarter. South African equities have been caught up in the broader emerging markets sell-off. While these companies face short-term consumer-related weakness, the outlook for both companies is strong as they pursue disciplined expansions across sub-Saharan Africa and look to benefit from the favourable demographics that exist in the region. As incomes in developing economies increase, the demand for a high quality of packaged foods and household goods should rise, creating opportunities for strong local brands to benefit.
|Discrete year performance
||Janus Henderson Global Equity Fund (%)
||MSCI AC World Index (%)
|1 year to 30/09/2018
|1 year to 30/09/2017
|1 year to 30/09/2016
|1 year to 30/09/2015
|1 year to 30/09/2014
* Source: Morningstar, at 30 September 2018, nav-nav, net income reinvested, net of fees, Class I Acc shares, in Sterling. Past performance is not a guide to future performance. Prices can go up and down and you may not get back the amount originally invested. NAV = net asset value.
Fund activity review
In terms of activity, we initiated a new position in Intercontinental Exchange (ICE), a leading financial markets exchanges and clearing house operator. ICE is well positioned to benefit from positive volume trends in over-the-counter derivatives trading as well as through the provision of data and clearing services.
We sold our position in Facebook in July. We have been concerned with Facebook’s engagement on corporate governance and social issues for some time. While we believe the company is taking these matters seriously, the requirement for incremental investment in security and further spend guided on other areas promises margin compression and as a result we have decided to exit the stock.
We also sold AmerisourceBergen. Recent results have highlighted that the downtrend in the pharmaceutical distribution business now appears more structural rather than cyclical. Finally, we also sold PZ Cussons, a UK-listed consumer goods company.
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