September was another positive month for global equity markets, adding to the strong year-to-date performance of global markets. The Fund outperformed the MSCI World Index, although the Fund continues to lag its benchmark on a year to date basis.

Our performance for the month was driven by negative sector allocation but positive stock selection. Particularly within consumer discretionary, selection was strong. H&M rose with 37% in Euro terms in September (after a weak performance so far this year) after the like-for like sales were better than expected. Also within the financials and energy sectors, selection added to the performance. Within financials, Axa and MS&AD Insurance performed well. The energy sector benefitted as the oil price rose further and reached 3-year highs in September. In particular our emerging markets names in the energy sector rose sharply, Lukoil and CNOOC. The strongest sector was energy, while real estate was the weakest. Year-to-date information technology is the strongest performing sector.

At the end of September our quarterly rebalance was implemented. Four positions where completely sold, while five new names were added. Merck and Cisco were sold after the dividend yield fell below our 3% threshold after the strong share price performances. Also Itochu and New York Community Bancorp where sold. Itochu had performed well and the valuation was not attractive anymore, while for NY Community Bancorp we had a more attractive alternative with Huntington Bancshares. In addition, we added: Copa Holdings (an airline company in Latin America), BASF (a German well diversified chemical company), Samsung Electronic pref shares (Consumer Electronic Conglomerate) and Babcock International (an UK firm that provides support services to the public-sector institutions like the Ministry of Defense).

The year-to-date underperformance is unfortunate but valuation spreads are nearing record levels. Although price to earnings multiples are a simplistic means of assessing future performance, on an aggregate level they are predictive of returns. Our portfolio currently trades at a 12 times P/E based on historical profitability, which supports a dividend yield of 5.1% for the Fund as a whole. We believe this makes it an attractive absolute and relative investment going forward. The same cannot be said of the market as a whole. The MSCI World Index trades at a historical PE of over 18 times and a dividend yield of 2.5%. While the benchmark as whole may have slightly higher earnings growth, this cannot compensate for the large divergence in valuations. At a PE of 12 times, investors in the Fund are getting a prospective earnings yield of over 8% (vs the benchmark of 5.4%). The market is pricing in a high degree of disruption. We believe disruption is real, but that the pace at which it happens is lower than people expect. In a diversified portfolio of close to 100 companies, we are always going to have individual names that disappoint or surprise to the upside. We believe that a value process of bottom up stock picking will lead to more winners than losers, as our long term track record indicates. We continue to purchase our investments based on intrinsic value, while ensuring a margin of safety when we select our stocks.