Portfolio Review
The Global Fund Class A shares (w/out sales charge) returned 4.51% for the quarter ending December 31, 2015 versus 5.50% for the MSCI World Index. While the Fund produced strong absolute returns in the fourth quarter, our performance lagged the MSCI World Index because of our holdings in cash and cash equivalents and gold bullion.
Japanese companies and global IT companies were among the leading contributors in the quarter. The top five contributors were Microsoft Corporation, KDDI Corporation, Hoya Corporation, Keyence Corporation and HeidelbergCement AG. Investors began to reward Microsoft for its transition to cloud computing and for the steady income that this business model has generated. KDDI, a Japanese mobile phone operator, gained ground as investors recognized that the regulatory environment for Japanese telecoms would be more benign than expected. The sector had sold off after Prime Minister Abe stated that he wanted to see mobile phone costs lowered for consumers. Subsequently, investors learned that the Ministry of Internal Affairs and Communications does not have the power to regulate tariffs and that its goal is to introduce more competition, not to reduce the profits of the major telecom operators. Japan’s Hoya Corporation gained ground on the strength of its IT business. The company’s semiconductor-related products met with strong demand, and weakness in the yen was favorable for the portion of Hoya’s business that provides glass disks for hard disk drives. Keyence, a contributor this quarter but a detractor in the third quarter, is a leading player in the world of electronic sensors for factory automation. In addition to the high margins it enjoys in its home market of Japan, the company is rapidly growing its business in the United States. Investors also hope that Keyence will begin to distribute some of the excess it holds on its balance sheet.
Detractors for the quarter included a number of companies in the energy and materials sectors. The largest five detractors were gold bullion, National Oilwell Varco, Potash Corporation of Saskatchewan, Sanofi and American Express Company. National Oilwell Varco, which focuses on services for technically challenging oil wells, once again saw its shares fall along with the rest of the energy sector. Our long-term view of the company’s prospects is based on our belief that a $37 a barrel price for oil is not here to stay. The price could certainly go lower for a time, but if the industry is to bring on new fields to replace those that are becoming depleted, we believe the price of oil will have to rise significantly. The oil fields being depleted are largely conventional ones, but they’re generally being replaced by unconventional oil—fracking onshore and ultra-deep wells offshore. These are areas where National Oilwell Varco plays a dominant role. Canada’s Potash Corporation was weak both because of the general decline in commodities companies and because depreciation in the Russian ruble gave one of its key competitors a pricing advantage. Sanofi, a pharmaceutical company based in France lost ground, alongside others in its industry, when drug pricing became a prominent issue in US politics. American Express declined because of sharp competitive pressure from other credit card companies in the co-branded card business.
For the year-ending December 31, 2015, the top five contributors were Microsoft Corporation, KDDI Corporation, Secom Company Ltd., Berkeley Group Holdings and Keyence Corporation. The five largest detractors for the year were National Oilwell Varco, gold bullion, Potash Corporation of Saskatchewan, Oracle Corporation and Teradata Corporation.
