Global High Conviction Strategy Update

DP GHC Factsheet AUD 20191231

• World markets were strong in Q4. We remain fully invested with a value and quality bias.
• The AUD$ rose in December reducing the quarterly unhedged returns of the strategy a little.
• All major regions performed strongly in the quarter rising between 7% and 9% in US$. We remain very constructive on the Japanese equity market.
• China-USA trade talks appear to be progressing and although Hong Kong remains mired in protests, the prospects for corporate profits growth in and from, China remain reasonable.
• Brexit seems to have been resolved with a large majority voting for the Conservatives in the December general election. The UK equity market and Sterling rose strongly but there is plenty of time to evaluate the exit and the investment implications. Following a research trip to Europe in October we invested in Barratt Developments, a UK housebuilder; raising UK exposure before the election.
• The departure of the UK, a sizeable net contributor, may be the catalyst for a re-appraisal of EU economic policy? We remain underweight the region and the Euro while the politicians continue to impair economic well being.
• As well as Barratt we purchased or added to Alibaba and Discovery Channel during the quarter. We took some profits in Hitachi High Tech which rose over 100% during 2019. We sold Caterpillar and reinvested in Johnson Controls a USA based infrastructure services company.
• Notable contributors in the quarter were: Hitachi High Tech + 21%; Sony + 16%; Legal & General + 25%; AES + 23%

Global Infrastructure Strategy Update

DP GLIN Factsheet 20191231

• Delft Partners Global Infrastructure strategy is an income producing portfolio of listed infrastructure assets which typically have more regular and stable revenue streams. The strategy aims to generate total returns that are more defensive than broader listed equities with low correlation to mainstream assets, providing stable income, capital growth and liquidity with lower return volatility compared to typical listed equity strategies.
• 2019 was a good year for equity markets, mainly driven up by the US market (+30%). Interest in Infrastructure stocks remained high and the fund rose +27.59% in AUD terms compared to the global benchmark which rose +24.59%.
• The rising concern of global warming/environmental issues should generally help the infrastructure sector – the need for better public transport, a switch to renewables (good for electric utilities), and incentives to provide a cleaner environment, all provide a tailwind to revenue and ratings.
• The portfolio outperformed the benchmark in Q4 helped by good performances from AES, Gibson Energy, Transalta Renewables, Deutsche Post and Encavis.
• New purchases in Q4 were made in Shenzhen Intl (Southern Chinese highway tolls), Fraport (Frankfurt Airport), Enagas, and Nippon Gas while West Japan Railway and Outfront Media were sold.
• The portfolio maintains a strong bias to renewable energy assets in North America. In 2020 we could see more focus on public sector infrastructure (roads, rail, bridges, etc) where there has been significant underinvestment in many western developed countries and we remain alert to further opportunities in this particular area.

Asia Small Companies Strategy Update

DP ASC Factsheet AUD 20191231

The Asian region recorded a strong gain of 7.9% during the fourth quarter in USD terms which was converted into a gain of 3.6% in AUD terms due to a recovery by the local currency. Our positive performance during the quarter was driven by strong stock selection especially in Japan and asset allocation in favour of China and Taiwan.
The strongest markets in the quarter were China +11.9%, Taiwan +11.3% and South Korea +9.9%. The gain in China was in response to the long awaited “phase one” trade deal, measures to boost domestic infrastructure spending and an easing of residency restrictions. South Korea was helped by an improvement in relations with Japan following high level bilateral discussions and a lifting of the embargo on imports of key technology products. Taiwan continued to perform well bringing the full year gain to 30.1%, the best in our region, helped by a very strong technology sector. Japan increased by 7.8%, Singapore by 7.2% and Hong Kong lagged with a gain of 5.6% for the quarter.
Seven of our portfolio holdings increased by more than 25% during the quarter, the best was Japan Aviation Electronics up 44.9%, performance was boosted by the potential for a restructuring of the NEC Group of companies which also helped our holding in NEC Networks up 32% during the period. Our plastic pipe manufacturer China Lesso was another strong performer during the quarter up 34.6% on news of increased infrastructure spending in China. The weakest performer during the period was Mapletree North Asia Commercial Trust which fell 12.1% in reaction to damage to their Festival Walk retail shopping mall in Hong Kong caused by the civil protests. Damage to property and loss of rental income caused by the protests is fully covered by insurance and we retain our position in the Mapletree North Asia Commercial Trust.
We will continue to invest in Asian small to mid-sized companies with strong value, momentum and quality attributes together with accounting, strategy and governance standards that meet our requirements. Long-term returns will be generated by the ability of our companies to deliver growing profits and dividends.

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