Manager Update – Q1 2024

Tom de Lisle: Hello and a warm welcome to the Global Equity Enhanced Income (GEEI) Fund quarterly review. My name is Tom de Lisle on the International Distribution team. I'm delighted to be joined by Eddie Cheng, portfolio manager of the fund. We have a series of questions and I'll just go straight into it. So, number one, the Magnificent Seven has been on everyone's minds lately, particularly in the last quarter. Do you think there's a place for them in an equity income portfolio?

Eddie Cheng: Yes, I do because we believe income investors not only care about income, but they also want to have growth. So, specifically, when we designed the strategy, not only did we focus on delivering that attractive level of income but also, we want to retain that growth potential. At this moment, we actually hold a couple of growth stocks in the portfolio with Meta as the latest addition in the beginning of this quarter, given strong fundamentals, as well as the improving social and governance profile. In the portfolio, specifically, Meta provides a very critical growth exposure, as we mentioned earlier, but also allows us to participate in some of the megatrends, such as artificial intelligence. But at this moment, it also contributes to the income after it announced the first dividend in a decade. So, holding those growth exposures in the portfolio not only helped us to manage the risk of the overall strategy but also helped us to balance the exposure across the different sides of the portfolio and, most importantly, expand the universe that we can deliver the stock selection alpha.

Tom de Lisle: The benchmark, the MSCI ACWI (All Country World Index), was up about 8% in the last quarter. How did GEEI perform?

Eddie Cheng: It was indeed a very, very strong equity market in the first quarter on the back of much more resilient global growth, as well as the expectation of the faster rate cutting cycle in the beginning of this year. Over the quarter, the strategy actually performed very well. Our USD institutional share class returned 10.6% in the first quarter, which is over a 240 basis point outperformance against the benchmark. This strong active performance mainly comes from our stock selection alpha while our options sleeve actually slightly underperformed.

Tom de Lisle: You mentioned the options detracted from performance. Can you tell us why?

Eddie Cheng: So, we do have this active managed option strategy and it is designed to enhance our income by selling call options. By doing so, it allows us to sacrifice a small portion of the potential upside of our equity portfolio in exchange for a much more stable and income-like option premium. So, in a quarter like the first quarter with a strong equity up market, we do expect to sacrifice some of that upside. And that's the reason our option portfolio, as expected, detracted a bit from the performance. But it also highlights the strengths of the strategy from a diversified source of income. So, as I mentioned, this quarter, we do have a much lower distribution from our option portfolio. But on the other hand, it can be more than compensated by our strong equity performance.

Tom de Lisle: As an income product, GEEI targets a high level of current income. Your target is 1.5%. Did the GEEI fund meet the distribution target for the quarter?

Eddie Cheng: Yes, indeed. We actually just distributed 1.5% at the end of the first quarter across all our share classes, which maintained our distribution on target to 6% per annum. Because we believe our investors not only focus on the high level of income but also the consistency and stability of the income, that's why this strategy not only targets an attractive level of income but also want to keep that stability of the income per quarter. So, we maintain that 1.5%.

Tom de Lisle: Excellent. Thank you very much, Eddie.

Eddie Cheng: Thank you, Tom.