Section Hero Funds

Global Fund

Global Fund

1Q20 Commentary1

The U.S. equity markets started the year on an optimistic note. A U.S./China trade deal was signed, President Trump was ultimately acquitted of the charges for which he was impeached, and several Democratic candidates with more left-wing agendas lost momentum. However, as the quarter progressed and the novel coronavirus (COVID-19) outbreak spread across the globe, equities experienced significant losses and volatility surged across most asset classes. Stocks then rebounded to end the quarter amid optimism around extraordinary fiscal and monetary packages aimed at countering the financial impact of the pandemic. Also later in the quarter, the recent spate of algorithm-driven selling eased, while buy-and-hold investors like pension funds rebalanced their allocations, allowing equities to finish the quarter well off their lows. In fact, in late March stocks posted their best three-day streak since 1931, rallying more than +20% off levels posted only three days prior. 


The Dow Jones Industrial Index2, S&P 500 Index2 and Nasdaq Composite Index2 all dropped double-digit percentages during the quarter. Meanwhile in Europe, where several countries such as Italy, Spain and France were hit particularly hard by COVID-19, the MSCI Euro Index followed suit.


As the crisis grew across the U.S. and cities and states entered lockdown or “shelter in place” orders, policymakers took action to put in place measures (both fiscal and monetary) to help mitigate the financial impact of the crisis on markets, industries, corporations, small business and families. Regarding monetary policy, the Federal Reserve took unprecedented action to simultaneously cut interest rates, lower reserve requirements, back-stop money market funds and purchase hundreds of billions of dollars in U.S. Treasury notes and other securities.


On the fiscal policy front, the U.S. Senate and House of Representatives passed the CARES Act, the largest single economic relief bill in the country's history. The roughly $2 trillion plan includes provisions for one-time payments to individuals, strengthened unemployment insurance, additional health-care funding, loans and grants to small businesses to deter layoffs, student loan assistance, and funds earmarked for corporations and public health facilities. The Act's goal is to mitigate immediate damage to the economy, leaving open the door for more federal aid in the country's economic “recovery” phase. Policymakers have begun to discuss the next potential phase of stimulus, which could come in the form of a package focused on jobs and rebuilding American infrastructure, thereby assisting state and local governments in the process.


For the quarter, Japan's Nikkei 225 Index2 dropped -19.39% (in local currency). Equities in Europe were hit hard as the MSCI Euro Index2 plummeted -27.03%. On the other hand, the MSCI China Index2 only fell -10.22%. As China was the first epicenter of COVID-19 cases, it now appears to be past peak infection rates and China's economy is starting to come back online. The MSCI Emerging Markets Index2, which includes some southern economies where more infections may yet appear (e.g., South American countries), posted a substantial -23.60% loss during the period.


American workers displaced by the crisis filed unemployment claims in record numbers in the last two weeks of March, with the Labor Department reporting surges to 3.3 million and 6.6 million claims, compared to the prior week claims of 282,000. The prior peak for one week's claims was 665,000 in 1982. On the jobs front, nonfarm payrolls dropped by 701,000 in March, which was the first decline since September 2010, and the unemployment rate rose from 3.5% to 4.4%. We note that the March report captures data for the week ending March 12, which came just as the nation was beginning to implement various shutdown measures.


Energy markets were perhaps hit the hardest by aggressive supply increases as well as demand declines relating to the pandemic, as the price of West Texas Intermediate crude oil dropped by an astounding $41 dollars per barrel during the quarter. Global isolation (i.e. social distancing) measures are leading to an unparalleled collapse in oil demand which we now forecast will fall by millions of barrels per day in 2020. In addition to the impact of the COVID-19 pandemic, the oil market is also enduring pricing pressure due to production increases of spare oil capacity and a price war between Russia and Saudi Arabia.

 

As volatility set-in during the quarter, investors rushed to safe-haven assets, pushing yields on the U.S. 10-year Treasury Note to historically low levels. The 10-year yield began the year at 1.91%, but as stocks dropped and volatility rose, investors put their appetite for risk aside and instead flocked to perceived “safer” assets, although these assets were volatile from a price movement perspective. This capital flight increased in March, pushing the 10-year yield down to 0.66% by period-end, a remarkable decline.


In terms of market capitalization, although performance was in the red across the board, growth-oriented stocks were significantly “less bad” in the quarter than their value counterparts as the MSCI ACWI Growth Index2 and the MSCI ACWI Value Index2 posted returns of -15.71% and -27.09%, respectively.

The Marsico Global Fund posted a return of -11.98% for the first quarter and strongly outperformed its benchmark, the MSCI All Country World Index2, which returned -21.37%. . 

 

Primary Contributors4: Strong stock selection and an overweight allocation to the Information Technology sector3, the stronger-performing sector of the benchmark index, had the largest positive impact on performance in the quarter. Stock selection in the Consumer Discretionary sector was strong, aiding results. An underweight allocation and strong stock selection in the Financials sector also contributed positively to performance. As the benchmark declined more than -21%, the Fund benefited from an elevated cash position of 2% on average. The Fund maintained zero exposure to the weak-performing Energy sector boosting results.

Primary Detractors4: An underweight allocation to the Health Care sector was the primary source of underperformance in the quarter. Stock selection was weak in the Industrials sector dampening returns. An underweight allocation to the stronger-performing Consumer Staples sector detracted from results as well.

 

For more information, please click here for the Marsico Global Fund Quarterly Investment Update.

 


1 Performance data quoted represents past performance. Past performance is no guarantee of future results. A Fund's performance, especially for short time periods, should not be the sole factor in making an investment decision. Please keep in mind that our views on investments discussed herein are subject to change at any time and the holdings represented here do not represent all of the securities purchased, sold, or recommended by Marsico Capital Management, LLC ("MCM"). Certain less-material factors may not be presented.

2 The MSCI All Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI Growth Index captures large and mid cap securities exhibiting overall growth style characteristics across 23 Developed Markets (DM) countries and 23 Emerging Markets (EM) countries. The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate and long-term historical EPS growth trend and long-term historical sales per share growth trend. The MSCI ACWI Value Index captures large and mid cap securities exhibiting overall value style characteristics across 23 Developed Markets countries and 23 Emerging Markets (EM) countries. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield. With 1,298 constituents, the index targets 50% coverage of the free float-adjusted market capitalization of the MSCI ACWI Index. The S&P 500 Index is a registered trademark of S&P and is an unmanaged broadly-based index of the common stock prices of 500 large U.S. companies, and includes the reinvestment of dividends. The Dow Jones Industrial Average Index is a price-weighted measure of 30 large, publicly-owned blue chip companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. The index covers all industries except transportation and utilities. The Nasdaq Composite Index is the market capitalization-weighted index of approximately 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. The Nikkei 225 Stock Average Index is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange, excluding ETFs, REITs, preferred equity contribution securities, and tracking stocks (on subsidiary dividend) etc. other than common stocks. The MSCI Euro Index captures large cap representation across the 10 Developed Markets countries in the EMU. With 115 constituents, the index covers approximately 70% of the free float-adjusted market capitalization of the EMU. The MSCI China Index captures large- and mid-cap representation across China H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs). With 704 constituents, the index covers about 85% of the China equity universe. Currently, the index also includes Large Cap A shares represented at 5% of their free float adjusted market capitalization. Sources of foreign exchange rates may be different between a portfolio and the benchmarks. The indexes mentioned above are unmanaged and not available for direct investment. For comparison purposes, it should be noted that the indexes do not charge fees and have no expenses. 

3 Sector and industry weightings are determined using the Global Industry Classification Standard (“GICS”). GICS was developed by and is the exclusive property and service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s (“S&P”), and is licensed for use by MCM. Neither MSCI, S&P, MCM, nor any third party involved in compiling GICS makes any express or implied warranties or representations with respect to such standard or classification (or the results from use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any such standard or classification. MSCI, S&P, and MCM, and any of their affiliates or third parties involved in compiling GICS shall not have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

4Source: UMB Fund Services, Inc., FactSet and Marsico Capital Management, LLC (“MCM”). Data shown such as portfolio holdings, percentages, country, and sector weightings generally applied on the date shown above, and may have changed substantially since then. References to specific securities and sectors are not recommendations to buy or sell such securities or related investments.

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