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How did Premier perform in 3Q19?
This is a good news story. The Premier strategy has provided strong, absolute and relative performance over the last quarter, year-to-date, one year, three year and five-year period through September. And there’s really two important performance highlights.
First, during all those time periods that I referenced, the relative outperformance has been driven by stock selection. And secondly, over the last five-year period, Premier has performed strongly during times of differing market style leadership.
Which sectors helped and hindered performance?
Just to remind investors, Premier is invested in high-barrier, high-return, leading businesses with strong capital reinvestment opportunities. With that said, performance has been very broad. All nine sectors were positive, including Energy. Specifically, the largest weighting in Industrials was our largest positive impact. Year-to-date, the fund holdings were up over 25%, and broad, as I mentioned, in nature. So, we had strong performers from leading aircraft leasing business to leading aerospace supply component manufacture to a food solutions provider. Again, very broad in nature within the industrial sector.
Financials, our second-largest positive sector, was driven very strong by capital markets names, in particular, Ashmore, a leading emerging market debt specialist, as well as private credit specialist Ares. Beyond that, it was Information Technology, specifically software, where we saw strong stock selection. So amongst the detractors, we saw negative relative performance in Materials from a stock selection perspective that was driven predominantly by Quaker Houghton, which is a specialty chemical company serving predominantly automotive, where we saw a deterioration in the fundamentals.
Having said that though, we think the recent combination of Quaker and Houghton to be a formidable platform for outsized growth in the years to come. Beyond that, we had negative relative performance within Real Estate and Utilities, obviously, strong performing sectors during the time period, that we were underweight, which is typical for us in the Premier strategy.
What is your outlook?
As we sit here today, the global macro is cloudy at best. And so, rightfully, investors are most concerned about the cyclical elements of the market. We obviously have a healthy weight in cyclical companies and sectors. But these are not commodity businesses.
We actually believe our cyclical orientated names are going to perform well in the market, largely because again, the perception is that these are commodity businesses. And yet we believe that their business models have very durable, differentiating features. For example, they may be very asset light in nature. They may have a very high aftermarket parts and services mix. They oftentimes tend to have very customer orientated market, meaning they are low cost to provide but high cost to failure. And in instances like that, they tend to have much more durable features.
There clearly is no perfect crystal ball, but I strongly believe that Premier, which is a representation of quality and value, is going to perform well during a period where the profit cycle is slowing.
The thoughts and opinions expressed in the video are solely those of the persons speaking as of October 8, 2019 and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.
The performance data and trends outlined in this presentation are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.
