14 Jan

MGF Fund Update - December 2021

Top 10 Holdings Sector # % Microsoft Corporation Information Technology 8.7 Alphabet Inc Internet & eCommerce 6.3 Netflix Inc Internet & eCommerce 5.3 Starbucks Corporation Restaurants 4.9 Yum! Brands Inc Restaurants 4.7 Visa Inc Payments 4.6 Pepsico Inc Consumer Defensive 4.5 Intercontinental Exchange Inc Financials 3.9 Meta Platforms Inc Internet & eCommerce 3.9 MasterCard Inc Payments 3.7 TOTAL: 50.5 Sector Exposure by Source of Revenue # Geographical Exposure by Source of Revenue # Performance Chart growth of AUD $10,000 ^ Consumer Defensive , 15% Restaurants , 13% Health Care , 4% Internet & eCommerce , 21% Information Technology , 14% Consumer Discretionary , 0.1% Payments , 8% Financials , 4% Infrastructure , 11% Industrials , 1% Cash , 8% US , 46% Western Europe , 16% China , 7% Emerging Markets ex - China , 13% Rest Of World , 10% Cash , 8% $8,000 $10,000 $12,000 Nov-20 Feb-21 May-21 Aug-21 Nov-21 ^ Calculations are based on NAV prices with distributions reinvested, after ongoing fees and expenses but excluding individual tax, member fees and entry fees (if applicable). Fund Inception 30 November 2020. Returns denoted in AUD. # Sectors are internally defined. Geographical exposure is calculated on a look through basis based on underlying revenue exposure of individual compa nies held within the portfolio. Exposures may not sum to 100% due to rounding. + MSCI World Net Total Return Index (AUD). Fund Update: 31 December 2021 Magellan Global Fund (Closed Class) ARSN: 126 366 961 Ticker: MGF $11,555 14.2% p.a. Fund Facts Portfolio Manager s Lead Portfolio Manager: Hamish Douglass Co - Portfolio Manager: Arvid Streimann Structure Global Equity Fund (Closed Class Units), A$ Unhedged Inception Date 30 November 2020 Management Fee 1 1.35% per annum Fund Size / NAV Price AUD $3,296.8 million / $2.0748 per unit 2 Distribution Frequency Semi - annually Performance Fee 1 10.0% of the excess return of the units of the Fund above the higher of the Index Relative Hurdle (MSCI World NTR Index) and the Absolute Return Hurdle (the yield of 10 - year Australian Government Bonds). Additionally, the Performance Fees are subject to a high water mark. iNAV tickers Bloomberg MGF AU Equity MGFIV Index Thomson Reuters MGF.AX MGFAUiv.P IRESS MGF.ASX MGFAUDINAV.ETF 1 All fees are inclusive of the net effect of GST ; 2 NAV per unit is cum distribution and includes a distribution of $0.0 366 per unit distribution payable 19 January 2022. Fund Features • 'Closed - ended' unit class of the Magellan Global Fund (Ticker: MGF) • A specialised and focused long - only global equity portfolio • Relatively concentrated portfolio of typically 20 to 40 high - quality securities • Benchmark unaware • Target cash distribution of 4% per annum, paid semi annually • Typical cash exposure between 0% - 20% • Investors can buy or sell units on ASX like any other listed security • An attractive distribution reinvestment plan with a 7.5% discount to the NAV per Closed Class Unit. The discount will be paid by Magellan Financial Group Fund Performance ^ Fund (%) Index (%) + Excess (%) 1 Month 3.3 1.7 1.6 3 Months 6.8 7.1 - 0.3 6 Months 7.5 11.3 - 3.8 1 Year 19.8 29.3 - 9.5 Since Inception (p.a.) 14.2 25.8 - 11.6 Market Commentary Global stocks surged to record highs in the December quarter as concerns abated about the economic damage of the new Omicron covid - 19 variant, US companies posted stellar earnings reports, and US Congress postponed a debt - ceiling showdown and p assed more stimulus. The rise occurred even though the Federal Reserve decided to reduce its asset purchases after US inflation reached a 39 - year high and inflation accelerated worldwide. During the quarter, 10 of the 11 sectors rose in US - dollar terms. In formation technology (+13.2%) rose the most while communication services ( - 1.7%) was the sector that fell. The Morgan Stanley Capital International World Index rallied 7.8% in US dollars, to be up 21.8% for 2021. In Australian dollars, the index gained 7.1 % in the quarter and 29.3% over the year. US stocks climbed as better jobless numbers and encouraging reports on earnings, especially from the banks and Big Tech. A report showed consumer prices climbed 6.8% in the 12 months to November, the most since 198 2. In response, the Federal Reserve said it would accelerate its 'tapering' of monthly bond purchases. The central bank said it would prune its asset buying such that in January it would buy only US$60 billion of Treasuries and mortgage - backed securities c ompared with US$120 billion a month pre - tapering, while most Fed policymakers said they were prepared to raise the US cash rate three times in 2022. While reports showed an economy at full employment (the jobless rate fell to a pandemic low of 4.2% in Nove mber), the US economy expanded at a revised annualised rate of only 2.3% during the September quarter. In political news, the House of Representatives, over the unanimous opposition of Republicans, passed the US$2.2 trillion Build Back Better Act only for the centrepiece of President Joe Biden's domestic agenda to be blocked in the Democrat - controlled Senate. The House, with some Republican support, approved a US$1.2 trillion infrastructure package that had already passed the Senate. A proposal to raise the federal government's borrowing limit by US$2.5 trillion passed both chambers of Congress just before the December 15 deadline. The S&P 500 Index soared 10.6%, to up 26.9% for 2021. European stocks advanced on encouraging earnings results and improved econ omic news. A report showed the eurozone economy expanded 2.2% in the September quarter after pandemic restrictions eased, the same speed it grew in the June quarter. A report that showed eurozone inflation reached 4.9% in the 12 months to November proved n o dampener after the European Central Bank indicated it would not overreact to rising prices. The Euro Stoxx 50 Index added 6.2% over the quarter and 21% over 2021. Japan's Nikkei 225 Index lost 2.2% in the quarter, reducing 2021's gain to 4.9%, as the new covid - 19 variant prompted authorities to close the national border to foreigners and a report showed the economy shrank a larger - than - expected 0.9% in the September quarter, a contraction that prompted the re - elected Liberal Democrat government to promise US$350 billion in fresh fiscal stimulus. Australia's S&P/ASX 200 Accumulation Index rose 2.1% over the quarter (and 17.2% over 2021) as iron ore prices recovered and governments eased pandemic restrictions. China's CSI 300 Index edged up 1.5% over the qua rter (to be down 5.2% for 2021) on talk the regulatory crackdown on tech stocks has peaked. A report showed the pandemic had slowed economic growth to a 12 - month rate of 4.9% in the September quarter. The MSCI Emerging Markets Index shed 1.7% in US dollars over the quarter and 4.6% over the year as emerging countries were hit harder by the new variant. Index movements are in local currency. Fund Commentary The portfolio recorded a positive return in the quarter. The biggest contributors included the investments in Microsoft, Intercontinental Exchange and PepsiCo. Microsoft surged on a 22% jump in revenue for the third quarter as its cloud business benefited from the global shift to remote work. Intercontinental Exchange rose as energy derivative volumes climbed on the back of rising energy price volatility. PepsiCo gained after the drinks and snacks company raised its forecast for full - year earnings when anno uncing third - quarter profit and revenue (9% 'organic' growth) numbers that beat expectations. The biggest detractors were the investments in Alibaba Group and Meta Platforms. Alibaba dropped after the Chinese tech company announced sales figures that disap pointed for a second straight quarter and lowered its fiscal outlook for 2022, which fanned concerns about slowing consumer spending in China. Still, Alibaba announced a 29% rise in revenue for the September quarter and forecast 20% to 23% growth in fiscal 2022 revenue, rather than the 27% analysts were expecting. Meta fell after the renamed Facebook warned revenues in the fourth quarter will be knocked further by Apple’s privacy changes that restrict its ad - targeting, its third - quarter revenues fell short of expectations on Apple’s restrictions, and the company faced a public - relations blow and possible legal difficulties after a former employee exposed issues at the social - media company and that it was losing younger audiences. Stock contributors/detracto rs are based in local currency terms unless stated otherwise. Stock S tory: Intercontine ntal Exchange (ICE) In 1997, Jeff Sprecher of the US, who had spent years developing power plants, decided to provide transparent pricing to the US power market. Well before electronic trading of financial securities became the norm, Sprecher paid US$1 for a tech start - up so he could build a web - based trading platform. For three years, Sprecher and his team met oil, natural - gas and power companies to learn what people sought in a trading platform. Some of the innovations that resulted included pre - t rade credit limits, counterparty credit filters and electronic trade confirmations – novelties taken for granted now. By 2000, the trading platform was set for launch. Sprecher renamed the shell company Intercontinental Exchange to highlight the trading pl atform’s ability to cross oceans, let alone borders. In 2001, the International Petroleum Exchange of London wanted to evolve from floor to electronic trading. At the time, the exchange was a regional one that offered oil futures contracts and had less tha n 25% share of the global oil futures market. Intercontinental Exchange, which promotes itself as ICE, saw an opportunity to branch into energy futures and clearing and purchased the exchange. Thanks to the ability of ICE’s platform to increase price trans parency, handle high volumes efficiently and lower transaction costs, the volume of oil futures traded on what is now called ICE Futures Europe swelled. A regional exchange grew into a global one. From 2007, the year ICE listed (with the ticker ICE), the c ompany went on a buying spree of exchanges. The company snared the New York Board of Trade, which barters commodities such as cocoa, coffee and cotton, ChemConnect, which trades chemicals, and the Winnipeg Commodity Exchange, now ICE Futures Canada that ma inly trades canola. A sign of ICE’s ambitions was the company’s failed bid that year for the commodities - based Chicago Board of Trade. Undaunted, the ICE takeover quest continued such that ICE, which earned US$6.6 billion in revenue in fiscal 2020, owns an exchange arm that boasts 12 global exchanges and six clearing houses that service the energy, agricultural and financial sectors. The haul includes the purchase in 2013 of the New York Stock Exchange, the world’s biggest by volume. Among feats, ICE hosts nearly 66% of the world’s traded oil futures contracts and is the world’s leading clearer in energy and credit defaults. On top of that, ICE’s exchange arm manages key global benchmark contracts. This list includes Brent oil, Euribor, natural gas, sterling short and long rates and sugar barometers of performance. In recent years, ICE has branched out such that the exchange business, which brought in 55% of ICE revenue in fiscal 2020, is one of three divisions. The second arm, responsible for 27% of revenue in fiscal 2020, is the fixed income and data services business that sells data and technology to help investors make and execute decisions. ICE assess prices for roughly three million fixed - income securities spanning about 150 countries in 73 currencies, as well as providing advanced analytics and indexes for fixed - income markets. ICE’s other business is mortgage technology, which pulled in the remaining 18% of revenue in fiscal 2020. This arm has digitalised the mortgage process to reduce costs and increa se efficiencies. The ICE mortgage business is the largest to automate the entire process, is the industry’s leading platform with more than 3,000 customers, partners and investors, and the industry’s only loan registry. This platform offers significant gro wth potential as more US mortgage originators are expected to turn to ICE’s digitised offering. ICE is a promising investment in three ways. The first is that the exchanges and other businesses possess sustainable competitive advantages that form a dauntin g ‘moat’ for the parent company – where moat is a colloquial way to say a company is protected from competition. Most of ICE’s earnings are derived from trading and clearing fees from the exchange businesses and linked data. These businesses are moated bec ause they enjoy economies of scale, network effects and industry structure that intimidate would - be competitors. Another moat for ICE is that when it comes to derivatives and listing, there are limited substitutes. The holder of benchmark contracts is favo ured in negotiations, even if others are seeking to undercut on price. A second advantage ICE enjoys is that the company is vertically integrated – it controls the execution and clearing of contracts. This enables the company to exert pricing power, attrac t volumes, and improve counterparty and systemic risk management. The other advantage that makes ICE an attractive investment is the company is well managed. While ICE has a history of disrupting others, the Sprecher - led team has prevented ICE being disrup ted. Management has steered the business towards attractive industry structures (derivatives exchanges), unique data sources and value - add analytics. As important, the team has largely directed ICE away from equities exchanges, where regulation and technol ogy have upended the pricing power and volumes over the past 15 years. All up, ICE is well placed to provide compounded returns for its investors for the foreseeable future. ICE, as do all businesses, faces risks. One is that the company’s revenue is tied to trading volumes over which it Important Information: Units in the fund referred to herein are issued by Magellan Asset Management Limited ABN 31 120 593 94 6, AFS Licence No. 304 301 ('Magellan'). This mate rial is issued by Magellan and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendat ion. This material does not take into account your investment objectives, financial situati on or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investmen t product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Dete rmination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a dec ision about whether to acquire, or to continue to hold, the relevant financial product. A copy of the relevant PDS and TMD r elating to the relevant Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com. au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of the fund, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment s trategy or that its investment objectives will be achieved. Statements contained in this material that are not historical fac ts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and u nknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. This material may contain 'fo rward - looking statements'. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward - looking statements. This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is a ccurate, complete or timely and does not provide any warranties regarding results obtained from its use. No representation or warranty is made with respect to the accuracy or completeness of any of the information co ntained in this material. Magellan will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material. Further information regarding any benchmark referred to herein can be found at www.magellangroup.com.au. Any third - party trademarks contained he rein are used for information purposes only and are the property of their respective owners. Magellan claims no ownership in, nor any affiliation with, such trademarks. This material and the in formation contained within it may not be reproduced, or disclos ed, in whole or in part, without the prior written consent of Magellan . MGF44561 has little influence. The fact that trading volumes often increase in turbulent and falling markets means that ICE is well placed to weather a market slump that falls short of a prolonged ‘bear market’ where trading was lig ht. ICE’s other risk is that its business is exposed to adverse changes to regulations. Moves by regulators to separate execution and clearing, and actions that might reduce trading volumes, would disrupt ICE’s revenue. ICE is protected to some extent in t his regard because regulators are aware that such moves against exchanges, especially ones that feature large derivatives trading, would boost trading costs, hamper innovation and, possibly, increase systemic risks. ICE, thus, is well placed in a world whe re Sprecher’s vision has helped electronic trading become the norm. Sources: ICE filings and company website.
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