The IVA International Fund Class A (NAV) ended the quarter on December 31, 2020 with a return of 10.51% versus the MSCI All Country World Index (ex-U.S.) (Net) (Index) return of 17.01% for the same period.
Markets started off shaky in the fourth quarter with uncertainty surrounding earnings season, U.S. elections in November and the continued pandemic. At the end of the quarter, optimism surrounding the success of the COVID vaccines, additional stimulus in the U.S. and a conclusion to the contentious U.S. election kept the recovery on track. Value stocks, which had been the most beaten down throughout 2020 due to the pandemic, showed a rise over growth stocks in the fourth quarter. In mid-November through December, value names rebounded with a vengeance, generally outperforming growth stocks. Overall there appeared to be a rotation to value toward the end of the fourth quarter.
Our equities in the fourth quarter increased from last quarter returning 20.3% and contributing 11.6% to the portfolio. By sector, Consumer Discretionary contributed the most adding 3.0%, followed by Financials and Communication Services each returning 1.9%. Performance in Consumer Discretionary was led by our holdings in BMW, Richemont, and Sodexo, while Financials was led by UBS and Communication Services was led by Publicis Groupe. There were no sectors that detracted this quarter. By country, France contributed the most adding 3.0%, followed by Switzerland adding 1.6% and Mexico adding 1.4%. Two countries detracted this quarter: Japan -0.2% and Hong Kong -0.1%.
The Fund’s equity exposure decreased in the fourth quarter from 62.0% previously to 57.6% and our cash exposure increased from 31.0% to 37.5%. Over the quarter we added some names to the portfolio, including Danone and UBS. Danone, a global French based food service company, had faced headwinds from some past sloppy capital allocation (overpaying for acquisitions) and challenges for their baby food brands with competition from Chinese companies. We believe the price accounts for these issues and we took the opportunity to buy this quality company which focuses on healthy products and adheres to ESG guidelines. UBS is a name we have owned, and added to our position significantly during the quarter when the discount widened. We like the wealth management franchise at UBS and strong brand. Over the quarter, we have found some of the best values to be in Asia, and particularly in Japan.
Fixed Income detracted -0.2% from the portfolio. We reduced our exposure from 1.9% in the previous quarter to 0.0% mid fourth quarter. Our gold exposure remains in a few select mining companies and decreased from 5.1% in the previous quarter to 4.9%, detracting -0.3% from the portfolio.
During the fourth quarter, our currency hedges detracted -0.2% from the portfolio. As we suspect the U.S. Dollar could continue to weaken, in November we eliminated all hedges (Korean won and British pound) aside from the Thai baht, which is currently at 89.6%.
Despite the more recent rebound for value names, 2020 has been hard for value investors. While value stocks are not discounted enough for us to be fully invested, on a relative basis we believe value stocks are a better place to be than overpriced growth or high quality stocks. It is still unknown whether or not deflationary forces will remain strong for the next 3-5 years or if inflation will rear its ugly head. The market turmoil of last year has shown that good stock picking is essential. As we get closer to country-wide and world-wide vaccines and there is light at the end of the tunnel in bringing the virus under control, the economy may begin to normalize and provide a clearer outlook. High and rising debt levels continue to concern us now with 330% debt to global GDP, up from 200% in 2008. We have to think this someday may have negative consequences and we continue to be cautious. We thank you for your patience and support.
Performance Information (as of December 31, 2020)
|Average Annual Total Returns|
|Class||3 Months||YTD||1 Year||5 Year||10 Year||Since
|A (with load)||5.01%||-9.07%||-9.07%||1.60%||3.30%||5.70%|
|MSCI All Country World Index (ex-U.S.) (Net)||17.01%||10.65%||10.65%||8.93%||4.92%||5.70%|