• Which market indicators and combination of conditions will see our global portfolios increase the funds’ equity exposures? Read here.

Keeping calm in October


Keeping calm in October

There is a lot going on this October. Writing from our New York office, your author is sitting in a front row seat for what is the most significant monthly decline in the global equity markets in recent history. (And with pipe bombs being discovered in the US postal system, the stock market is far from the most important news story at present).

First, some context. Montgomery Global’s funds were launched nearly 3.5 years ago. Over this period, we have observed a few different market environments. These can be observed in the chart below which illustrates the monthly returns of the MSCI World Total Return Index since the launch of our global funds.

In our first year of existence, the global market was highly volatile and average equity returns were low. Then came 2017 during which the opposite occurred. Volatility all but disappeared and the market increased significantly. Now 2018 is almost complete and we appear to have reverted again to an environment of high volatility with lower average returns.

Monthly Returns — MSCI World Total Return Index (USD)

Monthly Returns — MSCI World Total Return Index (USD)

Note: Red bar represents month of October to 24/10/2018
Source: Bloomberg

Indeed, as the red bar illustrates in the chart above, the month of October 2018 (to 24/10/2018, the time of writing this blog) has seen the largest one month decline since the inception of our global funds.

In the Montgomery Global Fund (as well as our ASX-quoted: “MOGL” fund) we hold cash in the portfolio when the opportunity set thins – up to a practical limit of 30 per cent. We believe holding cash during these periods make sense. Should the market decline, the cash helps limit the downside. And as stocks become cheaper, cash can be deployed quickly to take advantage of new opportunities.

An this is exactly what we have been doing in the month of October. Shown below is the MSCI World Total Return Index over the last five months. We have marked on the chart the cash weightings of the Montgomery Global Fund (MGF) at the beginning of October versus on October 24.

MSCI World Total Return Index (USD)

MSCI World Total Return Index (USD)

Source: Bloomberg; MGIM

As you can see, when equities become cheaper and we identify more opportunities, you should expect our cash weighting to reduce. In this environment, we are deploying our dry powder into new opportunities. Similarly, when equities rebound and become relatively more expensive, our process will lead us to take profits. And our cash weighting will once again build over time


Andrew Macken is the Chief Investment Officer of the Montaka funds and the Montgomery Global funds. He established MGIM in 2015 in partnership with Montgomery.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. If no cash had been deployed, then in a falling market the % cash would typically rise as the total value of the fund (ie. the denominator) fell. Hence the ‘real’ decrease in cash is actually higher than the figures suggest.

  2. they will be negative for sure -you cant have such low cash /high levels of investment and be ok in a 10% fall in all global equity markets -unless they put all of it in US 10yr bonds ?

  3. Thanks for the update Andrew, hope you are enjoying your time in the US.

    My only mild concern is that when markets drop some investors might run for the gate so the cash is used to redeem thier units instead of snapping up the bargains.

    I think this is one reason some commentators like the LIC model.

    Have a great weekend mate.

    cheers George

  4. Hi Andrew,

    I’m very interested to see how the Montaka Fund performs this month.


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