The equity weighting was 98% of the Strategy at the end of September. Globally, the US stock market continued to stand out as a stellar performer with many other indexes down, or in the case of Japan, flat for the quarter. We have held an overweight position in Japan, which has been be a successful position to take. No matter, we were concerned that Japan could possibly suffer if the US and China trade war worsened or if president Trump targeted the Japanese directly. Over the quarter, we decided to reduce our overall exposure profitably by reducing the holding in the Schroder Tokyo fund. The prospect for rising oil prices led us to add Pioneer Natural Resources, which is exclusively focused on US shale oil production, to the Strategy. In the technology space, we decided to take profits from Apple, and part of the holding in ASML Holding. We were disappointed to book a loss on Broadcom after a volte face regarding the direction of strategy by management hit their credibility. We bought First Data Corporation, eBay and Netflix. In the US healthcare sector, we took profits from Eli Lilly and added to Merck & Co. Thematically, our intention is to seek out value ideas that offer the prospect of rising returns in an interest rate hiking cycle and hopefully insulate the portfolio in the event equity markets discount the risk of a recession. To that end, we purchased Citizens Financial Group, Constellation Brands and McDonald’s during this period. In Europe, we took a loss on Bayer, following a legal defeat relating to a California case connected with its acquisition of Monsanto and, we purchased Danish drug company Novo Nordisk. Airbus SE was also added to the Strategy. In the US, we took profits on Home Depot, Honeywell and SVB Financial Group. The UK equity market remains challenging given the difficulties of identifying investments not impacted by a massive change in the value of Sterling and the economy. We had mixed successes in the period with gains on Admiral and Smiths Group offset by losses on Thomas Cook and Standard Life Aberdeen. New additions this quarter were Direct Line, Legal & General, Melrose Industries (whom bought previous profitable holding GKN) and DS Smith.
On a trade weighted basis Sterling fell a little under 1% over the past three months. Non-Sterling exposure in the Strategy stood at 47.7% at the end of September. The moves in Sterling continue to be driven by the strength or weakness of the US Dollar, as the wide interest rate differential favours America’s currency. As the Brexit clock ticks down towards the exit day in March we are likely to see further volatility in Sterling no matter the outcome – down towards parity against the Dollar if it is a “hard Brexit” and a strong rally above $1.40 if a benign Brexit agreement is duly struck.