In March, global markets declined. Global markets dropped for the month while KGHDF outperformed the market. Sector allocation was the main contributor for the month of March, driven by our overweight to more defensive sectors including telecom, utilities and real estate. In March, we also completed our quarterly rebalance. On a year to date basis KGHDF still trails the market.

In March a combination of worries caused the market to drop. Fears of an escalating trade war between China and the US increased equity market volatility. The Facebook data leak also caused technology related stocks to drop significantly.

In terms of stocks selection two of our biggest contributors were in the utility sector: EDP and National Grid. EDP benefited from improved weather conditions, as increased rain helped the electricity produced by the hydroelectric power stations run by EDP. The share price of National Grid was helped by increased interest in defensively position companies. Our top three bottom contributors were Boskalis, L Brands and WPP. Boskalis, a Dutch dredging and oil services firm, issued disappointing guidance. We believe the depressed earnings environment for Boskalis is likely to improve as global commodity capital expenditures improve. L brands a US branded retailer reported weaker than expected like for like sales. WPP, the world’s largest advertising agency, released weaker than expected numbers. WPP is seeing reduced spending from its major clients as well as increased competition from technology companies. We believe that growth is unlikely to reach historic levels, but that the business model is likely to remain resilient. The current valuation offers ample margin of safety.

As a result of our quarterly rebalance we sold 6 companies and added 10 new firms to the portfolio. We sold three names as their crossed the 3% threshold: KKR, Tapestry and Toyota. Three companies were sold as the risk/reward was no longer attractive: Novartis, Seagate and Nutrien.

The ten names are discussed below:

- Kennedy Wilson: Attractively valued, opportunistic US & European real estate investor. Owns a well-positioned portfolio of primarily US pacific North West apartments, US West Coast offices, UK offices and Irish offices and apartments.
- BMW: High return on capital auto manufacturer trading at mid-single digit earnings multiple. Industry is undergoing change, but this has been more than priced in.
- Aggrekon: Supplier of temporary power solutions. We believe end-markets are likely to bottom, this will improve earnings.
- Caltex Australia: Attractively valued Australian petrol station company with many outlets, also owns a refinery.
- Bridgestone Corp: Leading global tire manufacturer offering a recurring income stream, solid balance sheet and reasonable valuation.
- PPL Corp: Fully regulated US and UK utility. Recent sell-off offered attractive entry point.
- Greene King: Market undervalues the earnings power of this UK pub operator as the investors have to much focus on the current highly competitive environment and concerns around Brexit and UK consumers.
- Unilever: Recent pull back of the shares offer an attractive entry point to add this well positioned global branded food & HPC business.
- Tate & Lyle: Specialty food ingredient business that is attractively valued again after a significant derating.
- Siemens: Improved execution and divestments have improved the focus of the group. Sell-off in capital goods has created an improved entry point.

After a period of muted markets, we welcome increased volatility as this improves our ability to pick individual stocks. The recent decline in equity markets should however be weighed against the strong equity returns in 2017. We believe European and Emerging market stocks offer strong expected returns, but the same cannot yet be said of the North American market. Despite the tail wind of tax reform, it remains difficult to find ideas that offer attractively valued ideas.

Our focus is on finding companies with sustainable dividends that can be bought at a discount to our estimate of intrinsic value. We base our estimate on the Earnings Power Value (EPV) framework of the Columbia Business School. EPV allows us to separate the three valuation components: asset value, earnings power and growth value. This framework improves our ability to analyze what we are paying for, and gives insight into whether a stock is priced with a margin of safety.

KGHDF now has a forward yield of around 5.2%. Our portfolio trades at a significant discount to market multiples. We remain optimistic on the dividend growth prospects for 2018.