This medium-high risk fund is ideal for investors who require long-term capital growth by investing in various asset classes, but predominantly in equity. The recommended investment time horizon is 7+ years.
This moderate to high risk fund is ideal for investors seeking meaningful growth of capital from a diversified portfolio of global equities and other assets. The fund’s aim is to outperform global flexible fund peers. An investment time horizon of at least 7 to 10 years is recommended.
Returns reflected below the chart are annualised. Source: Bloomberg, MorningStar and Northstar Asset Management.
Benchmark Return
Outperformance
Benchmark Return
Outperformance
To invest in the Offshore fund directly through Northstar email admin@northstar.co.za or alternatively contact your financial advisor.
*It is the clients responsibility to ensure the SARS requirements to transfer funds offshore are met however Northstar can put you in contact with a Foreign Exchange Service Provider to assist with these requirements.
Our unit trust range can be accessed via a number of platform providers. Please contact us for further information.
Northstar’s funds are available via all the major local and offshore LISPS (Linked Investment Services Providers). Please contact us for further information on how to invest via a LISP should that be your preference.
Performance Review
To successfully grow client capital, a natural tension exists between driving investment returns versus taking on risk.
Unfortunately, there is no public warning bell that rings to enlighten all market participants that the risk versus return scales have tipped one way or the other. In fact, what happens in practice is that market participants under risk when the potential for future capital returns are greatest, which coincides with cheap assets but downbeat views around markets and conversely, over-risk when prospective returns are low, ironically at times when markets are rallying and euphoric.
At Northstar, our approach to navigating expensive or cheap markets is not dependent on us guessing as to whether the market is over or under indexing risk. Instead, we independently value all the businesses, properties, bonds, and other available investment options that could be deserving of our clients’ capital and avoid those assets that are overvalued whilst investing in those that offer value. Central to our approach is the belief and knowledge that the stock market over and under values assets through cycles.
This approach has, as its only real risk, timing mismatches between the market’s performance versus the performance of the instruments which are held in our portfolios. Importantly, our approach avoids the risk of permanent capital losses!
Q2 2024 is such a time.
For the quarter, world indices continued to head higher (MSCI All Country World +3%), but, like the past year, only a handful of companies have driven most of these returns. This underlying market dynamic is evident in the return differential between the S&P 500 index for the year ending June 2024 of 24.9% versus the performance of the S&P equal weighted index, which gained a respectable but much lower 10.9%. In the 2nd quarter of 2024, the S&P gained 4.6% but the equally weighted index fell 2.8%.
Further illustration of this skewed performance dynamic in the market is that despite the MSCI World Index returning 2.8% in Q2, six of its eleven subsectors lost money during the quarter and only three subsectors outperformed the overall index – the top performer was technology at 11.5% return.
Two factors are impacting market returns. The first is significant index concentration – the S&P 500 is currently more concentrated than it ever has been. Over the past 35 years, the average weighting for the top 10 stocks in the index has been 20%, during the dot-com bubble this rose to 27% and is currently at 33%.
This concentrated market has also produced higher than normal returns. The longer-term average annual return from the S&P 500 has been about 10%, compared to the past decade’s average annual return of 13%. It is worth pointing out that although index concentration levels are historically elevated, the valuation premium on the largest index stocks versus the rest of the market is not as extreme as it was in late 1999/2000.
The second reason for the outperformance of a narrow grouping of stocks versus the overall market is that they have delivered superior growth in profitability, especially since early 2023. Historically, the earnings momentum of US “value stocks’’ and ‘’growth stocks’’ moved in sync with each other. However, since 2023, a huge divergence in the earnings momentum of the Magnificent 7 has occurred relative to the rest of the market. The year-on-year forward earnings for these growth companies is 22% versus a mere 4% for the balance of stocks.
As we head into the backend of 2024, the earnings base for these top performing tech companies is elevated. It is going to become incredibly difficult, if not impossible to sustain earnings superiority off these raised levels. Of course, with risk taking at elevated levels, the market is sanguine in this regard, not only extrapolating ever higher levels of future profitability, but also placing these stocks on elevated prices and valuations. The converse is true for the balance of the market – earnings are low, expectations are low, and pricing is low.
Six such episodes of concentration have occurred over history in markets – in all instance normalization occurs where the balance of the market begins to outperform the market heavyweights and in so doing the level of stock concentration normalizes.
A unique opportunity exists to own high quality companies with enduring business models that have long-term earnings power and are underpriced and unloved by the market. The Northstar Global Flexible Fund owns many of these types of businesses, a few examples include Reckitt Benckiser, Medtronic, Visa and Mastercard – these 4 companies are between 50% and 25% undervalued based on our work. We contrast these quality undervalued companies against the five largest stocks that account for the MSCI All Country World Index – Microsoft, Nvidia, Apple, Amazon, and Meta – whilst we do not dispute that these too are phenomenal businesses, but based on our work, their share prices have significant downside to our view of their intrinsic values.
For the 2nd quarter the Northstar Global Flexible $ fund lagged the peer average (+0.89%), with a -0.82% return. Year-to-date the fund gained 4.96% versus its global peer average of 4.58%.
Latest Allocation
