Market Overview
Global equity markets showed continued strength in June (MSCI ACWI +2.2% total return in USD). Stylistically, MSCI ACWI Growth (+4.8%) led MSCI ACWI Value (-0.5%), while large cap and the momentum factor both maintained relative leadership (MSCI ACWI Equal Weighted -1.3% and MSCI ACWI Momentum +4.6%). The US 10-year bond yield fell slightly from 4.5% to 4.4% and real yields from 2.2% to 2.1%. These dynamics were very similar the prior month. Recent economic lead indicators have generally come in weaker than expected, but inflation continues to come down in line with expectations. The ECB has started cutting rates ahead of the Fed, which is unprecedented since its establishment in 1998. Prior to this, there has only been one time since 1970 when the Bundesbank cut rates before the Fed – October 1974, when German equities outperformed U.S. over the following 6 months (+49% vs. +17% total return)[1]. So far, the opposite has happened this time around. French political uncertainty ahead of the snap election in June led to an unwind of European risk asset positioning.
Strategy Update
Performance
The fund returned +1.7% in June. In comparison, the MSCI ACWI index returned +3.0% (all in GBP). Since inception, the fund has returned +29.7%, compared to the global benchmark’s +29.6%.[2]
John Wiley & Sons (+12% in GBP) was the largest positive contributor following strong results, which were ahead of guidance. Samsung Electronics (+13%) was up strongly, having been the largest negative contributor in May. At the Computex conference, Nvidia CEO Jensen Huang said that Samsung’s HBM chips are going through Nvidia’s certification process, although they still need additional engineering before completing the certification process.
Henry Schein (-7%) was the largest detractor within the portfolio. Commentary from a range of dental industry management teams at conferences suggests a modest growth environment in the US this year. We believe this is already baked into Henry Schein’s guidance. Owning no shares in NVIDIA (+14%), Apple (+10%), and Microsoft (+8%) detracted -1% from relative returns.
Activity
We added no new positions and exited two in June.
A successful investment in Carlisle was sold because the share price went beyond our assessment of fair value. It is a fine business that we would happily own again at the right price. Tate & Lyle has decided to use its under-leveraged balance sheet to make a large acquisition, on which it only expects to achieve above cost of capital returns by year 5. That these returns are reliant on revenue synergies is not a source of comfort and we expect that this transaction will destroy a material amount of shareholder value. We sold our entire position on the announcement of the deal and believe that the market’s reaction, marking the share price down 10% since, is rational.
We used some of this capital to increase our weighting in John Wiley & Sons. Since we started buying last month, its full year results demonstrated that margin recovery is ahead of schedule. It has also signed two intriguing AI licensing agreements, whereby its content is used to train large language models (LLMs). We also bought more Henry Schein into share price weakness. Investors appear to be pricing one-off and cyclical factors as structural in nature, while the real story is a solid underlying distribution business being supplemented by growing dental specialty (e.g., implants) and software businesses. The latter come with a materially higher margin profile.
KEY RISKS
The value of investments and any income generated may go down as well as up in response to general market conditions and the performance of the assets held, and is not guaranteed. An investor may not get back the amount originally invested.
Past performance is not a reliable guide to future results.
Changes in exchange rates may have an adverse effect on the value, price or income of investments.
There is no guarantee that the Fund will meet its stated objectives.
The movements of exchange rates may lead to further changes in the value of investments and the income from them.
There is a risk that any company providing services such as safe keeping of assets or acting as counterparty to derivatives may become insolvent, which may cause losses to the Fund.
MSCI
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.
All index and stock performance data is sourced from Bloomberg Finance LP
[1] Ned Davis Research
[2] Inception: 7 July 2022. Fund: F share class (GBP), midday to midday pricing. Benchmark: close-of-business to close-of-business pricing.
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