Global Fund Update – February 2025
2025 started on a positive note for global equities as President Trump began a new term in office, which simultaneously brought hope for a “business friendly”, lower tax environment in the US. This came at the same time as concerns about the economic impact of potential tariffs and their implications for growth and inflation. In early February we have already seen President Trump announce 25% tariffs on both Canada and Mexico, only to announce a month’s delay a few days later while going ahead with a 10% levy on China.
In the US, the FOMC meeting confirmed that US interest rate cuts are now on pause and could be for some time as new White House policies on tariffs and immigration and their impact on inflation become clearer. Fed Chair Jerome Powell resisted pressure from the President to lower rates, instead continuing to indicate that the Federal Reserve would be data dependent.
Chinese policymakers are determined to do more to help stabilise their economy, improve consumer sentiment and stimulate the local stock market in 2025. Last year we amended our portfolio strategy to increase our exposure to China, adding new positions in L’Oréal and China Life while also adding to our holding in Moncler. European luxury goods stocks performed well in January as companies reported a slight improvement in Chinese trading conditions. We have long admired LVMH as a company and added this stock to our portfolio last month. LVMH’s latest results showed solid performance from the Louis Vuitton brands and from Tiffany, while the Wines & Spirits division continued to show weakness. We remain concerned about the prospects for the alcohol industry and closed out our position in Davide Campari last year as a result.
The Bank of Japan once again raised interest rates in January by another 25bps to 0.5%, continuing its policy of normalising interest rates. So far, this has failed to strengthen the yen materially but has continued to benefit the results of Japanese financial stocks. Both Sumitomo Mitsui Financial Group and Sumitomo Mitsui Trust produced strong results that were well ahead of consensus estimates and we believe still offer excellent value and above market dividend yields.
European stocks rose by 6.4% in January in their best monthly performance since November 2023. The ECB cut interest rates by another 25bps in January and left the door open for further reductions. In addition, there is growing pressure for fiscal reform to stimulate growth, notably in countries like Germany, where once again GDP growth forecasts were reduced to just 0.3% in 2025. German Economy Minister Robert Habeck described the economy as “stuck in stagnation”, stating that his country had systematically been under investing and that fiscal policies had been a break on growth.
It has broadly been a strong start to the earnings season for the final quarter of 2024. The US banking sector traditionally opens the reporting season and painted a robust picture of their financial strength and their hopes for a “more business friendly environment” in the US under a Trump administration. We added Morgan Stanley to the portfolio in the second half of 2024 and were pleased to see the company report very robust results in all parts of the business, accompanied by a very confident statement where management expected to see a virtuous cycle for all elements of corporate finance that will create a strong tailwind for the business.
In the healthcare sector, Johnson & Johnson and Roche both reported solid results and both stocks performed well in January, aided by yield support and low valuations. We have long been supporters of Roche and added J&J to the portfolio last year to create additional defensive balance given a more uncertain environment following two strong years of stock market returns.
In the MedTech sector, we saw contrasting fortunes for two companies following the announcement of their results. Shares in Danaher fell 10%, followed just one day later by Thermo Fisher’s stock price rising over 6%. Danaher management commented that they expect to see revenue growth of 3% this year, but will still see a mid-single digit decline in the first quarter following a weak respiratory season. While Thermo also only anticipates full year growth of 3-4%, management’s commentary was very upbeat with respect to new product innovation impacting sales growth along with more optimistic comments on the expected performance of the business through 2025. Thermo expect that revenue growth will accelerate throughout the year and possibly get close to the targeted long term rate of 7-9%.
The introduction of a new powerful artificial intelligence app known as DeepSeek by a Chinese start-up sent shock waves through the technology and power related sectors of the market at the end of January. This app apparently requires considerably less processing power and costs far less money to develop than what has been spent by US hyperscalers and related infrastructure companies. Shares of semiconductor companies, including Broadcom and Nvidia, saw hundreds of billions of dollars wiped off their valuations. Similarly, many companies that have been excellent performers from the anticipated increase in power use from AI data centres, including Schneider Electric, Trane Technologies, and even nuclear power stocks like Cameco, were all also severe casualties of the headlines. While it is too early to understand the full implications of this news, it was a timely reminder to investors to be careful at a time when so many valuations have been propelled higher by the AI theme.
While we remain great admirers of Nvidia, we have continued to reduce our position during January. In addition we have also decreased our position in Meta Platforms after a great recent run and a strong set of results. We also modestly reduced our holding in Microsoft ahead of results that modestly disappointed the market.
The AI theme remains an enormously important part of our overall portfolio construction. Last year we continued to build positions in the shares of companies like Accenture and IBM, both of whom we strongly believe will be key enablers in the increasing corporate adoption of AI over the coming months and years. IBM produced a strong set of results and a forecast for revenue acceleration to at least a 5% run rate for 2025, pushing shares to new highs.
Netflix also produced excellent results in January, once again highlighting that the company has established itself as the clear global leader in streaming. Netflix continues to see strong subscriber growth, notably from its value for money, ad-supported tier and from the successful introduction of targeted sporting events. The streaming of two NFL matches live to subscribers on Christmas Day drew huge audience viewing figures and management noted that there had been no significant shift in “churn” following the event. Netflix shares performed well in 2024 and have started 2025 strongly, rising 9.6% in January.
We believe the Global Fund is appropriately positioned to withstand an increasingly volatile environment in global stock markets and in January, we reduced the overall correlation risk within the portfolio. The current position of the fund is around 7.5% cash and we continue to take a balanced approach to our portfolio that reflects many different outcomes, but focuses on quality companies, with strong balance sheets and cash flow that are well positioned for future growth.
Tim Gregory
Fund Manager
Goshawk Asset Management
Data source: Goshawk Asset Management, Bloomberg
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