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April 24, 2023

Commentary: NCM Core Global and NCM Core International

On April 24, 2023, Portfolio Manager Phil D’Iorio briefly recapped a challenging 2022 and laid out his cautiously optimistic case for 2023.


It's April 24th, 2023. My name is Phil D’Iorio and I'm the lead manager for NCM Core Global and Core International mandates. Today, I'm going to give you an update on the funds. So a good starting point would be a review of the first quarter.

The global stock markets rebounded very nicely during the first quarter after a challenging year in 2022, and the strength was seen across all markets globally. In the US, the S&P was up 7%. Over in Europe, the Stoxx Europe 600 index was up almost 8%. Nikkei 225 in Japan was up seven and a half. And emerging markets were up 4%.

In terms of activity and what we were doing, we were adding a little more cyclicality to the portfolios after playing a lot of defense in 2022. So we were buying stocks in the technology, industrial and consumer discretionary sectors.

In terms of specific changes that we've made to the portfolio, we've been buying Meta Platforms in the Global Fund. Meta, formerly known as Facebook, is an interesting one for us since it’s a name that we used to own but we sold it a year ago when the company announced that they were going to spend $10 billion on the Metaverse. The stock actually fell by more than 70% after we sold it.

And although we didn't pick the bottom, we did buy it back about 25% lower than where we sold it.

Another name that we have been buying is a company called Kering It's a luxury company based in Europe with strong brands such as Gucci and Yves Saint Laurent. This is a really good luxury company growing at a pretty similar rate to a lot of its peers, except it trades at a much lower valuation. So we're excited about this one, which we've been buying for the global and the international portfolios.

An update would not be complete without talking about the dislocation that we've seen in the banking sector. Bank failures are never good, but we do see differences between what's happening today and what's happened in prior periods of market stress. The recent failures weren't caused by a deterioration in credit. It was deposit funding. Banks today have a lot more capital, so we're not worried about the whole entire system failing like we did in 2008.

You know, one of the things that changed after 2008 was regulatory requirements for banks to carry a lot more capital. So we’re just not seeing a similarity to what happened back then.

Finally, we can point to credit spreads when there is worries about credit worthiness, it does get reflected in the bond market through credit spreads. And the credit spreads today look nothing like they did back in 2008 and other periods of market stress, whether it be the tech meltdown in 2002 or the onset of the COVID pandemic back in 2020.

But don't want to cherry coat this. There are going to be consequences from the bank failures. Banks are tightening their lending standards and it will have a slowing impact on economic growth. And sure, I’d say that the probability of a recession has increased. But if a recession does happen, we do think it'll be a milder recession for quite a few reasons.

Corporates and consumers are less exposed to credit risk and leverage risk versus prior cycles. In the US, the debt servicing ratios are near multi-decade lows. In housing, 90% of US mortgages are fixed. So that's far below what we've seen during previous tightening cycles. And US companies have also shifted a large portion of their debt to fixed rate. Finally, the Fed has bullets, so to speak. Last year one of the concerns was that rates were at zero - Fed really couldn't do anything. But after raising rates by 475 basis points, if things start to slow too much, they can cut rates, which has historically been a good thing for the markets.

So just want to talk about a key trend that's happening in global equity markets. International markets are outperforming the US after 14-plus years of underperformance and that period pretty much happened from 2008 to 2021, where the US, a lot of it helped by low rates and what happened in the tech sector. But starting last year we are seeing outperformance by global equity markets with Europe leading the charge.

You know, a few reasons behind this. The China reopening is giving a lift to emerging markets, particularly throughout Asia. As I mentioned earlier, Europe's doing well. We're seeing positive earnings momentum there and they are also in Europe getting tailwinds from the China reopening. Finally, the valuations internationally are more attractive relative to the US trading at one and a half standard deviations below the average of the last several decades.

One of our funds, Core International, we think this is a good way to express the view on this trend of what's happening in the international markets. The fund has significant exposure to Europe and also to emerging markets. You know, in terms of the fund's strategy, you know, we like to get most of our exposure to emerging markets through companies headquartered in developed markets that just happen to have big footprints in the EM, and some of the companies like that would include Louis Louis Vuitton, one of the largest luxury companies in the world, L'Oreal, which is a quasi luxury company - premium cosmetics and beauty products. Diageo, based in London, the world's largest spirits company , and Kering, which I had mentioned earlier.

So just to close off today, I just want to mention a few reasons why Core Global and Core International are different. We take a concentrated portfolio approach, typically hold about 35 to 40 stocks. We have high active share, so we look different from the index. We also use a proprietary quantitative screening process that eliminates companies that are unlikely to create shareholder value over the long term. Finally, we've got an emphasis on quality compounders. We're investing in companies that generate high returns on invested capital, that generate robust free cash flow and have strong balance sheets.

Thank you for your time.


Phil D’Iorio is a Portfolio Manager, with Cumberland Investment Counsel Inc.(CIC). CIC is the sub-advisor to its affiliate, NCM Asset Management Ltd. The information in this video is current as of April 24, 2023 but is subject to change. The contents of this video (including facts, opinions, descriptions of or references to, products or securities) are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. The communication may contain forward-looking statements which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.



Phil D'Iorio, MBA, CFA

I search around the globe for best-of-breed companies trading at attractive valuations. And I spend a significant amount of time thinking about portfolio construction to ensure that the portfolio is optimized to reflect where we are in the cycle.