Onderwerp:                            FW: Coho ESG US Equity monthly update + last opportunity to inform investors about today's webinar May 9 at 15.00h

 

 

 

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Monthly Strategy Update: Coho ESG US Large Cap Equities
Links to the other Candoris Monthlies:
PAM Senior Loans       DSM GG, US, EME        VanEck EMD        VanEck EME       SIM US High Yield

 

Good morning,

WEBINAR TOMORROW!
Coho Partners will be hosting a webinar the 9th of May at 15:00 CET, click
here to sign up!

The 2019 rebound in the equity markets continued in the month of April, with the S&P 500 Index gaining 4.05% and S&P 500 Value Index up 4.1%. The Coho ESG fund lagged, gaining 2.18% (NET of fees in USD) for the month. 

The broad trends we saw in the first quarter of 2019 continued in April, with the economically sensitive sectors leading the charge and the more defensive sectors lagging. As evidence, the four best performing sectors included Financial Services, Communication Services, Information Technology, and Consumer Discretionary. These sectors posted gains well in excess of the broader market as offense led the rally. On the opposite side of the ledger, the defensive sectors lagged with Health Care being the worst performing sector this month and posting a negative return for the quarter.

Despite lagging the first 4 months of 2019, historically the Coho strategy has been able to keep up in Mature Bull markets as you can see in the table
here.


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  •  We welcomed new investors in the UCITS fund, AUM now stands at USD 190 million.
  • Valuations historically attractive vs S&P 500 
  • Click here for the playback of the previous Coho Webinar: Firm update, ESG and investment process, results and outlook.


 

 

As you may recall, a market environment led by momentum and economically sensitive companies presents a headwind for the Coho strategy. This headwind has been meaningful considering the Health Care sector, which is the largest by weight in the portfolio, is the worst performing group year-to-date and up just 4% versus a broad market gain of 18%. Last quarter we mentioned concerns that a single-payer government system had pressured performance for the sector. The table below illustrates that, on average, the Coho health-care holdings trade at a discount to the market and the sector. Moreover, the valuation discounts look particularly appealing in the context of first quarter earnings growth that has exceeded the market, a trend expected to continue over the next few years. In addition, these companies carry a dividend yield that is greater than that of the market and the sector by a wide margin.  While price volatility in the sector may continue in the near-term, as long-term investors we believe the sector offers attractive expected risk-adjusted returns.

For the latest complete Coho commentary click here or scroll down.

We simply, as always stick to the way we invested for almost 20 years that created superior returns, low volatility and a downmarket capture of 65-75%. 

ESG:
Coho is one of the few US equity managers that has ESG fully integrated in its investment process:


Please sign up for the next webinar  >>> click here to sign up!

 

 

Economically Sensitive weight at record >  peak of the tech boom in 2000

 

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Performance

April
S&P 500              +4.05%
S&P 500 Value    +4.12%
Coho ESG           +2.18% net of fees

Economically sensitive stocks have outperformed Demand defensive stocks for a very long period of time. As a result the portfolio has a low downside capture and a current valuation that is attractive (1.2 PE lower than the S&P 500). Please see below the Coho allocation to Demand defensive and Economically sensitive holdings versus the S&P 500 and S&P 500 Value.

 

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Commentary:

Looking deeper into first quarter earnings, all seven health-care holdings have reported, with all posting better-than-expected results and six of the seven raising full-year EPS guidance, an encouraging sign this early in the year. As the largest, and we believe best managed insurer, UnitedHealth Group has garnered considerable attention as it relates to single-payer health care, or “Medicare for All”. This is a company that has executed at a high level for over a decade and continues to do so, driving terrific earnings and dividend growth.  That dividend growth has exceeded 20% every year for the past eight, and we would not be surprised to see another 20% increase when it announces its new dividend rate this June.  We believe UnitedHealth is well positioned to help control health-care costs and as such, will be part of the solution as we increasingly move to an outcomes-based payments model in the years ahead. In a similar vein, CVS Health Corporation has evolved its business to put it at the center of what will increasingly become localized delivery of health care at a lower cost to the consumer. While we are cognizant of the political overhang, it’s likely the markets will eventually reward those companies that deliver superior revenue, earnings and cash flow growth.
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Outside of Health Care, the earnings reports for our portfolio companies have been mostly positive.  We were encouraged by the rebound in Omnicom, which appears to be pulling away from its peers on better execution and market share gains. Earnings growth for the Industrials sector has been pressured by slowing growth in China and weak global auto production. This was evident in the disappointing 3M Company report though we believe the management team is taking the necessary steps to right-size the near-term cost structure while continuing to drive innovation across the portfolio.   
We do not know how long this phase of the current bull market will last; however, here at Coho we remain firmly focused on our investment philosophy which looks to participate on the upside but most importantly, to protect your capital on the downside.
 
Turning to corporate governance, the 2019 proxy season is in full swing and thus far we have voted our proxies for half of the companies in the portfolio. In the election of boards of directors, our customized Proxy Voting Policy evaluates several criteria including professional skills, diversity in experiences, and other board commitments. Serving on a public company board involves a significant time and focus investment.  We prefer directors serve on no more than three boards and we vote our proxies accordingly.

As shown in the table below, Coho’s Proxy Voting Policy is more stringent on this metric compared to other industry benchmarks.
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For the complete commentary click here or go to the Coho factsheet.

Please click here for the PE valuation of the Coho portfolio versus that of the S&P 500.


 

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The Coho strategy offered protection during the IT crash in 2001, the financial crisis in 2008, the Euro crisis in 2011 and Q4 of 2018 (see table below) being fully invested, without the use of derivatives. The long term up market capture in mature bull markets has been close to 100%. The strategy has an annualized outperformance of 3.5% over the S&P 500 Total Return index since inception in 2000. We think this strategy should be a candidate if you do not expect markets to go up with > 10% per year the next years. After a long period of tech outperformance the valuation of the Coho portfolio versus the S&P 500 is attractive currently (P/E is 1.5 points lower than that of the S&P 500, 31-03-2019). The Coho ESG US Equity strategy has ESG fully integrated in the investment process and is available in a sizeable daily liquid  UCITS fund that is expected to grow the next months as the strategy has been selected by new investors, feel free to reach out for more information. 

Performance and StD since inception in 2000 vs S&P 500TR and peers:
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 ESG

  • Coho is UN PRI signatory, the fund has ESG fully integrated in their investment strategy. Please click here for the latest presentation.
  • The Sin Free/ESG track record dates back till 2011. Sin Free is the predecessor of the ESG strategy. As of January 2018 the Sin Free portfolio changed its name into ESG.
  • The Coho ESG US Large Cap strategy ranks 5th% when it comes to ESG score according to Morningstar 31/3/2019. (Morningstar/Sustainalitics globes). Click here for the latest Morningstar Globe ranking.
  • Coho actively engages with the companies in the Coho ESG 200 universe to better understand their commitment to ESG issues and to advocate for positive change.
  • Coho actively seeks increased transparency through more frequent and robust disclosure and through establishment of tangible goals.
  • Coho measures it’s impact via an impact report, please click here for the most recent impact report.
  • The Coho ESG US Large Cap Equity strategy measures the carbon footprint, water usage, % women in the board of their holdings, ESG disclosure score of holdings in the portfolio (figure 1 below).
  • Needles to say Coho excludes tobacco, cluster bombs.

Figure 1:
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Data as of 31-3-2019

Valuation and Firm/strategy 

  • Coho is a stable, employee owned firm, no analyst or PM has ever left the firm since start in the year 2000.
  • Focus is on one strategy only, true to style since inception in the year 2000 with a low turnover (15-20% per year) and low standard deviation (figure 2 below).

Figure 2:
              
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  • Long term since 2000, over multiple cycles 3.5% annualized outperformance over the S&P 500 and 2.61% over the Russell 1000 Value, beating peers, with a lower risk profile. (Data as of 30-4-2019) Click here for the presentation Coho vs Peers.
  • Assets under management of the firm are about 7 Billion USD, plenty of capacity left as they invest in US Large Cap.
  • Broad client base, to name a few: SEI, Russell, two Nordic pension funds.
  • Focus on capital preservation, predictable pattern of return, aiming for a down market capture of 65-75% (figure 3 below).
  • After 9 years into the bull market a correction may occur in which Coho is expected to outperform (down market capture 65-75%) if rally continues Coho is expected to capture most of the upside (figure 3 below).

Figure 3: Participate in mature bull markets, benefit from low downside capture
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Figure 4: Relative valuations of the Coho ESG US Large Cap portfolio vs. the S&P 500 in terms of Forward 12-month P/E. In blue Coho ESG Large Cap Equities in green S&P 500

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Coho ESG US LC Equity Composite data                                    Coho ESG US LC Equity Fund Facts

Alpha

4.27

 

 

 

ISIN

IE00BF1XKT19

Beta

0.77

 

 

 

Benchmark

S&P 500 TR

Std Dev

12.02

 

 

 

Currency

USD

UMC

87.96

 

 

 

Bloomberg ticker

COHIUSD

DMC

71.33

 

 

 

Asset Class

Equity

Information Ratio

0.62

 

 

 

Type

Core

Tracking Error

5.69

 

 

 

Region

United States

Sharpe Ratio

0.67

 

 

 

Dividend policy

Accumulating

 

Active Share

88.87%

as of 31-12-2018

 

 

 

 

Data as of 30-4-2019 source eVestment

 

 

The Coho strategy offered protection during the IT crash in 2001, the financial crisis in 2008, the Euro crisis in 2011. Historical downmarket capture over the last 17 years has been 71.33%. This in combination with an upmarket capture of 87.96% results in superior performance versus benchmarks and peers with an annualized outperformance of 3.5% since inception over the S&P 500 Total Return index. The strategy is available in a UCITS fund with ESG integrated in the process. Please follow the institutional share class of the Irish based UCITS fund via: ISIN: IE00BF1XKT19 and Bloomberg Ticker: COHIUSD.

 

 

 







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