The IVA Worldwide Fund Class A (NAV) ("the Fund") ended the quarter on June 30, 2017 with a return of 2.51% versus the MSCI All Country World Index (Net)("Index") return of 4.27%, bringing YTD performance to 7.35% versus the Index return of 11.48% for the same period.
Global markets continued to rise this quarter and volatility remained low. The only notable exception came at the end of the quarter when remarks by the European Central Bank and the Bank of England signaled an eventual end to quantitative easing. This, along with recent interest rate rises in the U.S. and "hawkish"; statements by the U.S. Federal Reserve, served as a reminder to markets that the historically accommodative monetary policy buoying global equities may not last forever.
Performance was diluted by the Fund's elevated cash position this quarter. However, our equities outperformed, up 5.4%, compared to those in the Index* which were up 4.3%. This was led by our names in Continental Europe, the United States and South Korea, which contributed a total of 2.5% to performance. A few top 10 names that contributed the most in these regions were Nestle S.A. (XSWX:NESN, Financial) (Switzerland, Consumer Staples), Oracle Corporation (ORCL, Financial) (U.S., Technology) and Samsung (XKRX:005930, Financial) (South Korea, Technology). Japan was the greatest detractor, taking away -0.2%. This negative performance was in large part due to Astellas Pharma (Japan, Healthcare), which was the Fund's worst performer for the quarter, detracting -0.3%. Like most other pharma companies, Astellas is facing the challenge of multiple patents expiring within the next 2-3 years. However, we still believe this is a great company that trades at a discount to our intrinsic value estimate. Our names in South Africa and Thailand also detracted from performance, taking away a total of -0.1%.
Fixed income contributed 0.1% to performance this quarter. Our fixed income exposure decreased from 2.5% to 2.4% over the quarter. Our currency hedges detracted -0.02%. Our hedges were unchanged this quarter, remaining at: 40% Australian dollar; 10% euro; 25% Japanese yen; 30% Korean won.
Gold was down -0.5% this quarter and detracted -0.03% from performance. As of June 30, our gold exposure was 5.7%. We continue to believe that gold acts as a prudent hedge in our portfolio against unforeseen extreme market events.
As markets rose this quarter, on top of already stretched valuations, it remained difficult to find undervalued securities. We initiated a new position in Europe, but at the same time trimmed names in multiple regions as prices approached our intrinsic value estimates. Our equity exposure decreased from 50.8% to 50.3% and cash increased from 41.0% to 41.6%.
The elevated cash level of our portfolio is the consequence of the very elevated valuations (and the resulting dearth of genuine bargains) of most financial assets worldwide. Our willingness to hold cash during periods in which we believe that global assets are overvalued is crucial to our investment approach, not only in our efforts to preserve our clients'; capital but to supply us with dry powder when genuine bargains surface.
We appreciate and thank you for your continued support.
* Excludes gold mining stocks
The views expressed in this document reflect those of the portfolio manager(s) only through the end of the period as stated on the cover and do not necessarily represent the views of IVA or any other person in the IVA organization. Any such views are subject to change at any time based upon market or other conditions and IVA disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for an IVA fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any IVA fund. The securities mentioned are not necessarily holdings invested in by the portfolio manager(s) or IVA. References to specific company securities should not be construed as recommendations or investment advice.
