The IVA Worldwide Fund Class A (NAV) ended the quarter on December 31, 2018 with a return of -8.04% versus the MSCI All Country World Index (Net)(“Index”) return of -12.75%, bringing YTD performance to -7.55% versus the Index return of -9.42% for the same period.
Global markets experienced a chaotic fourth quarter. In part triggered by signals from the U.S. Fed that monetary tightening would continue, global markets flailed in October- including U.S. technology names which had led U.S. equity performance for most of the year. December was even more difficult as oil fell, U.S. corporate earnings estimates grew increasingly worrisome, the U.S. Fed continued to raise rates and the U.S. government entered a partial shutdown. Global markets reacted with extreme volatility to end the year.
Cash and gold helped dampen volatility in the Funds throughout the quarter. We are also earning a return on our cash which contributed 0.2% for the quarter. Gold was up 7.6% and contributed 0.4%. As we will discuss shortly, in addition to acting as a buffer, cash also provided the dry powder we needed to buy what we believe to be undervalued securities.
It was a difficult quarter for our equities, which were down -14.4%. However, there were many instances of what we believe to be temporary unrealized losses (our assessment of value not being recognized by the market), which we acted on by adding to these positions. In addition, some of our long-term holdings hit high valuations, which enabled us to take gains as we trimmed and in some cases eliminated these positions.
By country, the United States was the largest detractor, taking away -3.6%, hurt most by our energy names. We have not revised our intrinsic value down on these names and actually added to our positions as they came down in price. Japan detracted -1.2% and France detracted -0.7%. In Japan, Astellas was our worst performing name and in France it was Bureau Veritas, both top 10 names in the portfolio. By sector, Industrials was the largest detractor, taking away -2.0%. Technology detracted -1.5% and Energy detracted -1.4%.
Fixed income detracted -0.2% and our currency hedges detracted -0.04%. Other than our hedge on the Korean Won, which increased from 30% to 41%, the rest of our hedges remained relatively unchanged, ending the year at: 40% Australian dollar, 10% euro, 25% Japanese yen.
In addition to adding to existing names at discounted prices, we also found a few new names this quarter in Mexico, South Korea and Europe. Equity exposure increased from 56.4% to 60.6% and cash decreased from 36.1% to 30.4%.
As we head into 2019 in an uncertain and volatile market landscape, our strongest commitment, as always, is preserving our clients’ assets. We will continue to focus on valuations and take advantage of market volatility as we attempt to preserve your capital and deliver positive absolute returns.
We appreciate your confidence and thank you for your support.
