Getting to know the Montaka portfolio – Part II

We last wrote about the Montaka portfolio from the perspective of geographical exposures. We now turn to the industries to which our clients’ capital is exposed.

The most commonly used industry classifications are known as GICS sectors. GICS stands for Global Industry Classification Standard and was developed and agreed upon by MSCI and S&P in the late 1990s.

We illustrate the GICS sector exposures of Montaka’s two portfolios below (as of month-end August 2015). We can see that consumer discretionary features prominently on both the long side and the short side. In the long portfolio, this includes names such as Foot Locker (NYSE:FL) and Electrolux (STO:ELUXB). In the short portfolio, this includes our luxury goods names, such as Prada (HKEx:1913).

The long portfolio also includes large exposures to Information Technology, driven by Apple (NASDAQ:AAPL); and Financials, driven by Challenger (ASX:CGF).Screen Shot 2015-10-02 at 9.20.59 am

We find that GICS sectors can be a little misleading on occasion. For example, according to GICS, a business like CVS Health (NYSE:CVS) is classified as Consumer Staples. While it does have a consumer staples retail segment, we view CVS Health very much as an integrated health care provider – which will be the source of the company’s future growth and is the focus of the company’s current strategy.

We can recut the charts above with the various adjustments that we see fit. Shown below, the differences are subtle. We can see that, in reality, Montaka is more bullish on Health Care and more negative on Energy than the original classifications would have us believe.

Screen Shot 2015-10-02 at 9.22.23 am

While industry classifications are helpful to get a sense of the exposures in Montaka’s portfolios, we stress again that each and every stock in the two portfolios undergo their own detailed, bottom-up research process. We are not simply making broad-brushed industry bets.

Screen Shot 2015-11-11 at 12.08.48 pmAndrew Macken is a Portfolio Manager with Montgomery Global Investment Management. To learn more about Montaka, please call +612 7202 0100.

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