Martin C.glbl Share Price (MNP)

Current portfolio positioning: Mildly defensive MNP is managed predominantly bottom-up and there has been little change in the positioning of the portfolio, from a thematic perspective, during the past six months. The exception is Financials, which remain MNP’s largest active underweight, where the manager has added selectively to banks, particularly in the US, where he has seen balance sheet improvements and an improved earnings outlook. All other changes have been entirely stock specific. MNP remains underweight in consumer goods, consumer services and remains marginally underweight healthcare. Overweight sectors remain unchanged although telecommunications, and oil & gas have been reduced to marginal overweights where as industrials, technology and basic materials are now more substantial overweights. Overall MNP retains a mildly more defensive allocation.

Attractive valuations – a number of valuation metrics are used including DCF, price/earnings ratio and free cash flow yields to assess long-term upside potential.  Growth – companies with good sales, attractive earnings, and above-average cash flow growth.  Positive change – identify specific changes in companies, or sectors, which the manager considers the market consensus has missed, creating the opportunity for superior analysis to establish valuations that differ from the market. Overview: Diversified global equity exposure As at 31 December 2012, MNP had 61 investments. The top 10 equity holdings accounted for 28.5% of net assets, private equity funds 1.2%, cash 2.7% and the remaining equity investments for 67.6% of net assets. As displayed in Exhibit 3, MNP’s sector allocation has reasonable differentials to those of the benchmark index, reflecting the actively-managed nature of the trust. As shown in Exhibit 1, MNP has a diversified global exposure with 47.5% in North America and 26.9% in developed Europe.

Asset allocation Investment process: Bottom-up stock selection MNP is managed using a predominantly bottom-up investment approach, supported by macro analysis. The manager is able to draw on the expertise of Martin Currie’s global team of 29 analysts. In terms of stock selection, the manager uses a number of screens that score stocks on a range of factors considered fundamental to long-term share price performance. This analysis is also supported by a comprehensive programme of company meetings. When evaluating stocks for inclusion in the portfolio, the manager looks for:  High-quality companies – companies with strong balance sheets that are generating strong cash flows, as well as high-calibre management with ownership stakes in the company.

The fund manager: Tom Walker The manager’s view: Increasingly positive on global equities The manager maintains that equity valuations remain attractive, particularly given the yields available on gilts and bonds, and that, with a general rotation back into equities taking place, there is further upside to equity prices. Reflecting this, the manager has become more bullish on equity valuations, if not the world economy, given the continuing global monetary expansion, which the manager believes will support growth and increase the attractiveness of equities as an inflation hedge. In terms of downside risks, long term solutions to structural problems such as eurozone competitiveness and US fiscal deficits are yet to be found, but the manager believes that the worse case scenarios of Euro implosion and US fiscal gridlock will not come to pass and that, even after a strong performance for equities during January, a further 10% uplift during 2013 is readily achievable.

The case for global equities Since the financial crisis, the usual yield advantage of 10-year government bonds compared to quality blue chip non-financial equities has reversed. Despite generally lower levels of global economic growth than before the financial crisis, if current dividend levels are maintained, it is difficult to see how equities will underperform bonds over the next 10 years. Dividend sustainability, which in general relies on economic growth and corporate profitability, is a key risk to the equity advantage emphasising the importance of stock selection.

Fund profile: Large cap global equities with capital growth focus Launched in 1999, MNP invests in large cap global equities with a focus on achieving capital growth and has been managed by Tom Walker, a director of Martin Currie’s investment team who is also responsible for North American investments, since January 2000. MNP initially had a three-tier strategy of investing in UK equities, international equities and private equity. 2007 saw the international allocation limit increase from 25% to 50%. Measures were then approved at the May 2011 AGM that saw the limit on international stocks removed and the investment objective changed to achieving “long-term capital growth in excess of the capital return of the FTSE World index” (previously FTSE All-Share – the benchmark change becoming effective from 1 June 2011). In addition, MNP is also no longer strategically committed to holding private equity funds (there are two legacy holdings, which account for 1.3% of the portfolio, both of which are quoted). The ex-income discount, actively managed since launch, has averaged 8.8% over MNP’s life.