Coronation Global Managed

PERFORMANCE & ASSET ALLOCATION SNAPSHOT

The stock market recovery post April’s tariff tantrum continued in Q3, with the MSCI All Country World Index (ACWI) advancing 8%. Bond market returns were fairly muted with a 1% gain (as measured by the Bloomberg Global Aggregate Bond Index). Perhaps most notable was the broad-based market strength in the face of much macro consternation, combined with a geographic broadening of returns: Developed Markets ex-US and Emerging Markets are both more than 10% ahead of the S&P 500 year-to-date (YTD). The Fund had a solid quarter, bringing the return for the last 12 months to 30.6% compared to 11.4% for the benchmark.

At quarter-end, the portfolio was positioned as follows:

• 64% effective equity
• 5% in real assets (listed infrastructure and property)
• 3% in high-yield fixed income
• 5% in inflation-linked assets
• 12% in investment-grade fixed income instruments
• 10.5% in short-dated T-bills

Macro wrap: breadth beyond the US

With global stock market returns being driven by a small number of US-listed, large capitalisation technology shares over the last few years, it was very pleasing to see this continued broadening out of market returns. Since early 2024, we have argued that increasingly narrow global stock markets have resulted in large parts of the market being totally ignored by investors. This has created a diversified opportunity set – across sector, style, and geography – for us as long-term focused, active stock pickers. While we admire many US businesses and are still finding select value there, we find the current opportunity set outside of the US more attractive, with the Fund’s US weight mirroring that of our global equity strategy in the graph below on the right.

Equities: EM leaders and select US opportunities

Last quarter, we discussed the emerging market (EM) quartet of winning businesses Mercado Libre, Coupang, Nubank, and Sea Ltd. These companies have a history of strong innovation, having leveraged their leading platforms into new services and revenue streams, with strong growth outlooks underpinned by multiple structural tailwinds. And this quarter, seven of the top 15 contributors were from emerging markets, with the list including CATL, the Chinese battery maker which holds a commanding global position in the provision of batteries for electric vehicles and energy storage systems; Nubank, the abovementioned leading digital bank in Latin America; Grab Holdings, which holds a dominant position in Southeast Asian ride-hailing alongside a strong presence in food delivery and fintech; and Eternal, the fast-growing Indian leader in online food delivery and quick commerce. Each of these businesses is on the right side of technological change, with a strong multi-year growth outlook that is superior to US-based peers, whilst trading at a fraction of the relative valuation.

Stock highlights: WBD, Mercado Libre, healthcare

With global stock markets also increasingly volatile, we continue to believe that frequent and extreme price dislocations are creating significant opportunities for investors who focus their research on company fundamentals. These opportunities still emerge even within the arguably “expensive” US market. One such example is Warner Bros. Discovery, a company we have owned for nearly three years and the largest contributor in the quarter. Warner Bros. Discovery is a US-listed media company consisting of three distinct businesses. Its growth assets include the critically acclaimed HBO Max streaming platform, which is behind hit shows like Game of Thrones and The White Lotus, and the Warner Bros. Studio, which owns valuable IP such as Superman and Harry Potter. It also owns a collection of linear TV networks that are in structural decline but still contribute significantly to earnings and cash generation. As a result of a still hefty, but declining and manageable debt load as well as exposure to declining linear networks, the market largely ignored the combined entity, which traded on a single-digit PE multiple. But this has now changed. First, the company announced that it would split into two separate entities to better highlight the value in its growth assets. And then in early September, it emerged that the Ellison-backed Paramount Skydance Corporation was exploring a bid for the whole company, sending shares up 50% plus over two days.

Mercado Libre, the leading ecommerce and fintech player in Latin America, was a detractor in the quarter (whilst still being a positive contributor YTD). The share declined 10% over the period due to concerns over Argentina’s economy (its third-largest market by sales, but more in terms of profits) and increased competitive intensity in Brazil. Whilst cognisant of these risks, it is worth remembering that Mercado Libre has grown strongly through many economic cycles, as evidenced by exceptional revenue growth of 45% per annum in USD over the last decade. And in Brazil specifically, it has an extremely strong competitive position thanks to its synergistic ecosystem that includes ecommerce, payments, and credit, and continues to grow its market share in the Brazilian ecommerce market. We continue to be attracted to its long growth runway, with ecommerce and credit penetration remaining very low in its geographies. We took advantage of the recent weakness to add to our position.

It was also pleasing to see strong contributions from Thermo Fisher Scientific and UnitedHealth. We had written about our healthcare holdings in Q2:

“Our healthcare holdings, which span the life sciences, health insurance, and healthcare equipment sectors, underperformed this quarter, largely due to growing uncertainty around potential regulatory changes in the US. The Trump administration has proposed cuts to healthcare programmes, including reductions to government and academic funding, the FDA, and Medicaid. They have also implemented tariffs that affect the cost of drugs and medical equipment manufactured abroad. More recently, President Trump signed an executive order aimed at reducing US drug prices, which are currently about three times higher than in other developed markets. Most pharmaceutical companies earn the bulk of their profits in the US, and therefore, this change is raising concerns about how future innovation will be funded. These regulatory developments are adding a cloud of uncertainty over R&D spending and capital investment across the healthcare sector.

We believe market reactions have overshot the likely impact of these potential changes. We remain confident in our selected healthcare holdings and believe they are well-positioned across global supply chains, customer bases, and/or product portfolios to not only navigate these changes but also gain market share in the process.”

Fixed income: short duration, disciplined credit

Our fixed income positioning remains conservative. The Fund’s duration of three years is more than three years shorter than that of the Index, with a yield to maturity (YTM) of 4.6%, which compares to the YTM on the global aggregate bond index of 3.5%. With credit spreads in both the investment grade and high yield markets at low levels, we believe now is not the time to be reaching for yield.

Approximately 13 country benchmarks hit all-time highs in Q3. And while the upside in our equity portfolio is lower than at the depths of the market sell-off in April, we still see an attractively valued portfolio that is diversified across geographies and sectors, and importantly, the composition of the equity portfolio remains high quality, with over 90% of the equity bucket comprised of winning businesses.

Thank you for your support and interest in the Fund.

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